<PAGE>   1
 
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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------
                                   FORM 10-K
 
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                         COMMISSION FILE NUMBER 1-10351
 
                      ------------------------------------
 
                    POTASH CORPORATION OF SASKATCHEWAN INC.
           (Exact name of the registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                 SASKATCHEWAN                                       N/A
       (State or other jurisdiction of                        (I.R.S. employer
        incorporation or organization)                      identification no.)
</TABLE>
 
                             122 - 1ST AVENUE SOUTH
                    SASKATOON, SASKATCHEWAN, CANADA S7K 7G3
                                  306-933-8500
 (Address and telephone number of the registrant's principal executive offices)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<S>                                            <C>
             TITLE OF EACH CLASS                    NAME OF EXCHANGE ON WHICH REGISTERED
         Common Shares, No Par Value                      New York Stock Exchange
(Including rights under the Shareholder Rights
                  Agreement)
</TABLE>
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]
 
     At March 16, 1998, the registrant had 54,143,678 Common Shares (the
"Shares") outstanding, and the aggregate market value of the 54,104,732 Shares
held by non-affiliates of the registrant was approximately $5,058,792,442.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the registrant's 1997 Annual Report to shareholders ("Annual
Report") are incorporated by reference into Part II.
 
     Portions of the registrant's Proxy Circular for its Annual and Special
Meeting of Shareholders in 1998 are incorporated by reference into Part III.
================================================================================
<PAGE>   2
 
                                     PART I
 
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
 
GENERAL
 
     Potash Corporation of Saskatchewan Inc. ("PCS") and its direct and indirect
subsidiaries (together with PCS' predecessors, the "Company") is one of the
world's largest integrated fertilizer and related industrial and feed products
companies. In 1997, the Company's potash production represented an estimated 16%
of global potash production. In 1997, the Company had 23% of global potash
capacity and an estimated 52% of global excess potash capacity, giving it more
available potash capacity than any single company or country other than Canada.
The Company is the third largest producer of phosphates worldwide by capacity,
currently representing approximately 9% of world phosphates production and 7% of
world phosphates capacity. The Company is also the largest nitrogen producer in
the Western Hemisphere.
 
     PCS is incorporated under the laws of Saskatchewan and is the successor to
a corporation without share capital established by the Province of Saskatchewan
in 1975. Between 1976 and 1990, the Company acquired substantial interests in
the Saskatchewan potash industry. It purchased the Cory mine in 1976, the
Rocanville and Lanigan mines in 1977, and, by 1990, 100% of the Allan mine when
the Company acquired all of the outstanding shares of Saskterra Fertilizers Ltd.
In addition, in 1978 the Company acquired reserves at Esterhazy, which are mined
by a third party.
 
     In November 1989, the Company was privatized by the Province of
Saskatchewan through the sale of 12.86 million common shares (the "Common
Shares") to the public at Cdn$18.00 per Common Share. While the Province of
Saskatchewan initially retained an ownership interest in the Company, this
interest had been reduced to zero by the end of 1993. At the time of
privatization, limitations on ownership of Common Shares were imposed in order
to restrict the ability of non-residents of Canada to own and vote the Common
Shares and to restrict any one person or group of associated persons from
holding more than 5% of the Common Shares, regardless of residency or
citizenship. In 1994, all restrictions on the holdings of the Common Shares were
eliminated.
 
     In October 1993, the Company acquired from Rio Algom Limited ("Rio") its
New Brunswick potash and port facilities and its Patience Lake mine in
Saskatchewan (the "Rio Acquisition").
 
     On April 10, 1995, the Company purchased all of the outstanding shares of
Texasgulf Inc. ("Texasgulf") from Elf Aquitaine, Inc. ("Elf (USA)") and Williams
Acquisition Holding Company, Inc. ("Williams"), for an aggregate purchase price
of $833 million (including acquisition costs). On April 10,1995, the name
"Texasgulf Inc." was changed to PCS Phosphate Company, Inc. ("PCS Phosphate").
PCS Phosphate manufactures and sells solid and liquid phosphate fertilizers,
animal feed supplements, and purified phosphoric acid which is used in food
products and industrial processes. Its facility in Aurora, North Carolina is the
largest vertically-integrated phosphate mine and processing plant in the world.
Other assets of PCS Phosphate include: animal feed plants in four states; two
industrial phosphoric acid plants owned through a 50% interest in a joint
venture carrying on business as Albright & Wilson Company ("Albright"); a
solution potash and salt mine in Moab, Utah; an undivided 50% interest in an
ammonia storage terminal in Savannah, Georgia; and PCS Phosphate's product
distribution infrastructure.
 
     On October 31, 1995, the Company purchased all of the outstanding shares of
White Springs Agricultural Chemicals, Inc. ("White Springs") from Occidental
Chemical Corporation ("OxyChem"), for an aggregate purchase price of $291.5
million (including acquisition costs). White Springs' primary assets are a
phosphate mine and two chemical plant complexes in northern Florida, Swift Creek
and Suwannee River, and a bulk terminal facility in Jacksonville, Florida. Other
assets of White Springs include an animal feed plant in Davenport, Iowa and two
more at the Suwannee River facility, and the remaining undivided 50% interest in
the ammonia storage terminal in Savannah, Georgia owned with PCS Phosphate.
 
     In November 1995 the Company, in an underwritten public offering, sold 2.3
million shares at $73 per share, for gross proceeds of $167,900,000. The
offering proceeds were used in connection with the Company's purchase of the
shares of White Springs.
 
                                       I-1
<PAGE>   3
 
     On March 6, 1997, the Company through its subsidiary PCS Nitrogen Inc.
("PCS Nitrogen") acquired all of the outstanding capital stock of Arcadian
Corporation ("Arcadian") in exchange for 8,029,092 of the Company's Common
Shares and $563,550,002 in cash. PCS Nitrogen produces nitrogen fertilizers and
nitrogen chemicals at facilities in Georgia, Iowa, Louisiana, Nebraska, North
Carolina, Ohio and Tennessee in the United States, and has large scale
operations in Trinidad. Other assets of PCS Nitrogen include a 50% interest in a
joint venture that owns and operates an ammonia storage terminal near Houston,
Texas and a 50% joint venture interest in a carbon dioxide processing operation
at PCS Nitrogen's plant in Augusta, Georgia.
 
     PCS has its head office and executive offices at Suite 500, 122-1st Avenue
South, Saskatoon, Saskatchewan, Canada S7K 7G3. In this Form 10-K, the term
"Company" means PCS, its predecessors and its direct and indirect subsidiaries
unless the context otherwise indicates.
 
     See Note 16 to the consolidated financial statements for information
concerning the Company's domestic and international results.
 
     Unless otherwise specified, dollar amounts are stated in U.S. Dollars.
 
     The Company's operations are comprised primarily of potash, phosphate and
nitrogen operations.
 
POTASH OPERATIONS
 
     The Company's potash operations include the mining and production of
potash, which is predominantly used as fertilizer.
 
PROPERTIES
 
     The Company controls the right to mine 691,400 acres of land in
Saskatchewan. Included in these holdings are mineral rights to 488,100 acres
contained in blocks around the six mines in which the Company has an interest,
of which acres approximately 35% are owned by the Company, approximately 50% are
under lease from the Province of Saskatchewan and approximately 15% are leased
from other parties. The majority of the leases are for 21-year terms, renewable
at the Company's option. The Company's remaining 203,300 acres are located
elsewhere in Saskatchewan.
 
     Potash is mined by the Company from two main potash bearing formations in
Saskatchewan; the Patience Lake member of the prairie evaporites in the north
and the Esterhazy member of the prairie evaporites in the south. The Patience
Lake member is mined at the Lanigan, Allan, Patience Lake and Cory mines, and
the Esterhazy member is mined at the Rocanville and Esterhazy mines.
 
     Under a long-term mining and processing agreement (the "Mining and
Processing Agreement") effective through 2026, International Minerals & Chemical
(Canada) Global Limited ("IMC") mines and processes PCS reserves at the
Esterhazy division. PCS has the option to terminate this agreement every five
years. It did not opt to give notice to terminate in December 1995. IMC has the
option of abandoning the mine at any time after 2011, thus terminating the
Mining and Processing Agreement. For the year ending June 30, 1998, the Company
has notified IMC that it requires total finished potash products in the amount
of 500,000 tons. For the year ending June 30, 1999, the Company has notified IMC
that it requires 700,000 tons of finished product. In each year the maximum the
Company is permitted to take under the Mining and Processing Agreement is
1,050,000 tons and the minimum required amount is 500,000 tons.
 
     Water inflow at the Esterhazy mine has continued, to a greater or lesser
degree, since December 1985. Substantial pumping capacity has been installed and
remedial efforts have been undertaken. The Company's share of water inflow costs
for 1997 was $4.5 million. IMC has stated that it will continue conventional
mining. PCS has no indication from IMC that solution mining or substitute shafts
will be pursued at this time.
 
     Potash is also produced by the Company at its New Brunswick mine from the
flank of an elongated salt structure and at its solution mining and milling
operation in Moab, Utah.
 
     In the first quarter of 1998, the Company acquired all of the outstanding
shares of Potash Company of Canada Limited ("Potacan"). Potacan's mine flooded
in 1997 and its primary asset is a potash mill facility
 
                                       I-2
<PAGE>   4
 
near Cassidy Lake, New Brunswick. The mill is currently being used to further
process standard grade product from certain of the Company's other mine sites
into coarse and granular product.
 
PRODUCTION
 
     In 1997, the Company's conventional potash operations mined 18.96 million
tonnes of ore at an average grade of 23.3% K(2)O. In 1997, the Company's potash
produced consisted of 6.48 million tonnes of potash (KCl) with an average grade
of 60.95% K(2)O, representing approximately 38% of North American production.
 
     The Company's present annual potash production capacity is approximately
12.2 million tonnes KCl, which includes maximum production under the Mining and
Processing Agreement with IMC of approximately one million tonnes at Esterhazy.
In December 1997, the Company's production capacity represented approximately
52% of the North American total while its excess capacity was an estimated 91%
of North American excess production capacity. The Company allocates production
among its mines on the basis of various factors, including the grades of product
which can be produced and cost efficiency. The Patience Lake mine, which was
originally a conventional underground mine, now employs a solution mining
method, while the other Saskatchewan mines which the Company owns or in which it
has an interest employ conventional underground mining methods.
 
     The New Brunswick mine is a conventional cut and fill mine, while the Moab,
Utah mine employs a solution mining method. In addition to their potash
production, these mines also produced 926,129 tonnes of sodium chloride (salt)
in 1997.
 
     As part of the Rio Acquisition, the Company granted a royalty interest to
Rio based upon production and revenue from the New Brunswick and Patience Lake
potash mines and mills (the "Royalty"). The terms of the Royalty provide that if
production meets specified base production levels or the sales of potash are at
prices which meet specified base sales prices, a royalty per tonne is to be
paid, calculated on a formula basis. Payments under the Royalty are limited to a
term expiring October 7, 2003 and to a maximum aggregate payment of Cdn$50
million. No payments have been made in respect of the Royalty to date.
 
RESERVES
 
     The Company estimates that its conventional mines in Saskatchewan contained
4.95 billion tonnes of recoverable ore at an average grade of 22.9% K(2)O as at
December 31, 1997, and that such ore will yield 1.6 billion tonnes of finished
product (KCl) at an average grade of 60% K(2)O.
 
     The Company's ore reserve estimates for its conventional mining operations
in Saskatchewan are based on exploration drill hole data, seismic data and
actual mining results during the past 25 years. The Company's estimated
recoverable ore and the estimated volumes of finished product from such ore are
as follows:
 
<TABLE>
<CAPTION>
                                                  RECOVERABLE    FINISHED
                      MINE                            ORE        PRODUCT
                      ----                        -----------    --------
                                                   (MILLIONS OF TONNES)
<S>                                               <C>            <C>
Allan...........................................    1,285.2        413.9
Cory............................................    1,075.6        359.1
Esterhazy.......................................       80.8         25.7
Lanigan.........................................    1,858.7        599.8
Rocanville......................................      648.1        206.4
                                                    -------      -------
                                                    4,948.4      1,604.9
                                                    =======      =======
</TABLE>
 
     The Company believes that, with production rates at full capacity and
utilizing current technology, the Rocanville mine has a reserve life in excess
of 90 years, each of the Allan, Cory and Lanigan mines has a reserve life in
excess of 100 years, and that the Esterhazy mine has a reserve life of at least
20 years.
 
     Given the characteristics of the solution mining method employed at the
Patience Lake mine, it is not possible to estimate definitively the productive
capacity of or the recoverable ore from this operation.
 
                                       I-3
<PAGE>   5
 
However, based on information obtained upon the acquisition of the mine, current
technology and the present mining area for this operation, the Company believes
that the mine has a reserve life of at least 40 years for the existing mine
workings. Different techniques will have to be utilized to mine reserves outside
of the existing mine workings.
 
     Based on geophysics, exploration drill hole data, definition drilling
underground and actual mining results, the Company estimates proven reserves of
52.1 million tonnes of recoverable ore and 19.0 million tonnes of estimated
finished product (KCl) at its New Brunswick mine. The Company believes that,
based upon its proven reserves, the New Brunswick mine has a reserve life of at
least 25 years with production at full capacity. The Company estimates that
probable reserves at the New Brunswick mine consist of 200 million tonnes of
recoverable ore and 72 million tonnes of estimated finished product (KCl). The
Company believes that, based upon its proven and probable reserves, the New
Brunswick mine has a reserve life in excess of 100 years at full production
capacity and utilizing current technology.
 
     The Moab solution operation has an estimated remaining life of 8 years, at
diminishing capacity.
 
PHOSPHATE OPERATIONS
 
     The Company mines phosphate ore and manufactures solid and liquid
fertilizers, animal feed supplements and purified phosphoric acid which is used
in food products and industrial processes.
 
PROPERTIES
 
     The Company conducts its phosphate operations primarily at two facilities,
one a 35,000-acre facility near Aurora, North Carolina (the "Aurora Facility")
and the other a 96,000-acre facility near White Springs in northern Florida (the
"White Springs Facility"). The Company believes the Aurora Facility to be the
largest integrated phosphate mine and phosphate processing complex at one site
in the world. The Aurora Facility includes a six million tonne per-year mining
operation, four sulfuric acid plants, four phosphoric acid plants, a liquid
fertilizer (11-37-0) plant, a superphosphoric acid plant, two diammonium
phosphate ("DAP") plants and a solid fertilizer plant capable of producing DAP,
granular triple superphosphate ("GTSP") or monoammonium phosphate ("MAP"). The
Company has also entered into the Albright joint venture which produces high
purity phosphoric acid at Aurora. The White Springs Facility is the fifth
largest P(2)O(5) producer, by capacity, in the United States, with an annual
capacity of 1.1 million tonnes. The White Springs Facility includes a mine and
two production facilities, Swift Creek and Suwannee River, with two sulfuric
acid plants, three phosphoric acid plants, two DAP plants, a superphosphoric
acid plant, a dicalcium phosphate plant and a deflourinated phosphate rock plant
located at the Suwannee River complex and two sulfuric acid plants and a
phosphoric acid plant located at the Swift Creek complex. The Company's other
properties include animal feed plants in Davenport, Iowa, Kinston, North
Carolina, Marseilles, Illinois, Saltville, Virginia and Weeping Water, Nebraska,
and bulk terminal facilities at Jacksonville, Florida and Morehead City, North
Carolina.
 
     At its Geismar facility, acquired as part of the Arcadian acquisition, the
Company manufactures a variety of phosphate products that are used for
agricultural and industrial purposes.
 
PRODUCTION
 
     The Company extracts phosphate ore using surface mining techniques. At each
mine site, the ore is mixed with recycled water to form a slurry, which is
pumped from the mine site to the Company's processing facilities. The ore is
then screened to remove coarse materials, washed to remove clay and floated to
remove sand to produce phosphate "rock". The annual production capacity of the
Company's mines is currently 9.6 million tonnes of phosphate rock. During 1997,
the Aurora Facility's total production of phosphate rock was 4.8 million tonnes
and the White Springs Facility's total production of phosphate rock was 3.6
million tonnes. The Company generally operates its phosphate mine and phosphate
processing plants 24 hours a day, seven days a week, using rotating shifts.
 
     Phosphate rock is the major input in the Company's phosphorus processing
operations. In addition to phosphate ore, the principal raw materials required
by the Company are sulfur, sulfuric acid and ammonia.
 
                                       I-4
<PAGE>   6
 
The production of phosphoric acid requires substantial quantities of sulfur,
which the Company purchases from third parties. In December 1997, the Company
entered into a ten-year supply contract with an offshore supplier to supply a
portion of the Company's sulfur requirements. The Company generally purchases
additional sulfuric acid from unaffiliated sellers. Sulfur and sulfuric acid
have been in abundant supply in recent years and remain so at the present time.
In 1998, the Company may transport surplus production of sulfuric acid at the
White Springs Facility to the Aurora Facility as needed.
 
     The Company purchases all of its ammonia from or through PCS Nitrogen and
PCS Sales (USA) Inc., wholly owned subsidiaries of the Company. The Company
reacts phosphoric acid with ammonia to produce DAP and MAP, as well as liquid
fertilizers. In addition, ammonia operations include the purchase, sale and
terminalling of anhydrous ammonia. Most of the ammonia that is currently
purchased by PCS Nitrogen is produced in the Republic of Russia (the "Russian
Ammonia") and imported through a White Springs-operated ammonia terminal located
within the port of Savannah (Garden City, Georgia). The Company's ammonia
expenses at the Aurora Facility are slightly higher than those of many of its
competitors because of higher transportation costs incurred in transporting
ammonia from Savannah to Aurora, North Carolina by rail.
 
     Substantially all of the phosphate rock produced by the Company is used
internally for the production of phosphoric acid, superphosphoric acid ("SPA"),
chemical fertilizers, purified phosphoric acid and animal feed products.
 
     A portion of the Company's phosphoric acid production, merchant grade
phosphoric acid ("MGA"), is sold in liquid form, mostly to foreign and domestic
producers of solid fertilizers. The solid fertilizers produced by the Company
are DAP and, to a lesser extent, GTSP and MAP. Over one-half of the Company's
DAP is exported, with the balance sold domestically, mostly to large regional
dealers that custom blend solid fertilizers.
 
     The Company's liquid fertilizer products, 68% of which was sold
domestically, consist principally of low-magnesium SPA, which the Company
markets under the name "LoMag". The Company believes that it is the largest U.S.
producer of SPA.
 
     The Company also processes phosphoric acid to produce animal feed
supplements for the poultry and livestock markets. The Albright joint venture
produces purified phosphoric acid for use in various food products and
industrial processes.
 
     In addition to nitrogen products, the Company produces phosphate products
at the Geismar plant for which supplies of phosphate rock and sulfur are
necessary. PCS Nitrogen purchases phosphate rock from Morocco pursuant to an
agreement with a Moroccan government-owned company, the current term of which
expires on December 31, 2002, wherein prices are reset annually through
negotiation. If no agreement on price is reached, either party may terminate the
agreement. Changes in the agreement could affect the stability of the supply of
the raw material and the profitability of PCS Nitrogen's phosphate products.
Sulfur is purchased pursuant to a contract that may be cancelled by either party
upon 180 days notice prior to the end of any month.
 
RESERVES
 
     At December 31, 1997, the Company's Aurora phosphate mine had estimated
proven and probable reserves of approximately 393 million tonnes of phosphate
rock, at an average grade of 30.7% P(2)O(5). These reserves would permit mining
to continue at current rates for about 75 years. The Aurora phosphate mine has
an estimated annual capacity of 6.0 million tonnes of phosphate rock and its
processing plants have the capacity to produce 1.152 million P(2)O(5) tonnes of
phosphoric acid. On April 6, 1995, approximately 408 million tonnes of phosphate
reserves were transferred to a newly established company, the common stock of
which was transferred to Elf (USA) and Williams prior to the sale of PCS
Phosphate to the Company. The Company was granted a 20-year right of first
refusal (from April 10, 1995) in the event that the newly established company
proposes to sell the reserves. In addition, the newly established company and
Elf (USA) and Williams agreed, for a period of ten years from April 10, 1995 not
to compete, and for the first five years
 
                                       I-5
<PAGE>   7
 
not to make certain preparations to compete, with the Company with respect to
those reserves. See Environmental Matters -- Permits.
 
     The White Springs phosphate mine had estimated proven and probable reserves
of approximately 57 million tonnes of phosphate rock, at an average grade of
30.7% P(2)O(5). The Company estimates that an additional 11 million tonnes of
phosphate rock could be purchased at market rates from nearby owners.
Accordingly, the total reserves of 68 million tonnes of phosphate rock at White
Springs would sustain a 19 year mine at a mining rate of 3.6 million tonnes per
year. The White Springs mine has an estimated annual capacity of 3.6 million
tonnes of phosphate rock and the processing plants have the capacity to produce
annually 1.093 million P(2)O(5) tonnes of phosphoric acid. See Environmental
Matters -- Permits.
 
NITROGEN OPERATIONS
 
     The Company's nitrogen operations include production of nitrogen
fertilizers and nitrogen chemicals. These products are used for both
agricultural and industrial purposes.
 
PROPERTIES
 
     PCS Nitrogen manufactures nitrogen products at eight plants, of which seven
are located in the United States and one is located in Trinidad. The following
table sets forth the plant locations and nitrogen production capabilities:
 
<TABLE>
<CAPTION>
PLANT LOCATIONS                                       PRODUCTS PRODUCED
---------------                                       -----------------
<S>                              <C>
Augusta, Georgia.............    Ammonia, urea, nitric acid, ammonium nitrate and nitrogen
                                   solutions
Clinton, Iowa................    Ammonia, urea, nitric acid, ammonium nitrate and nitrogen
                                   solutions
Geismar, Louisiana...........    Ammonia, urea, nitric acid, ammonium nitrate, nitrogen
                                 solutions, phosphoric acid, super-phosphoric acid,
                                   phosphate solutions and sulfuric acid
LaPlatte, Nebraska...........    Ammonia, urea, nitric acid, ammonium nitrate and nitrogen
                                   solutions
Lima, Ohio...................    Ammonia, urea, nitric acid, nitrogen solutions and ammonium
                                   nitrate
Memphis, Tennessee...........    Ammonia and urea
Wilmington, North Carolina...    Nitric acid, nitrogen solutions and ammonium nitrate
Point Lisas, Trinidad........    Ammonia and urea
</TABLE>
 
     The plant at Wilmington, North Carolina is scheduled to cease production
during the first half of 1998.
 
PRODUCTION
 
     PCS Nitrogen produces ammonia at six of its seven domestic plants and in
Trinidad. The ammonia is used to produce a full line of upgraded nitrogen
products, including urea, ammonium nitrate, nitric acid and nitrogen solutions.
 
SERVICE AGREEMENTS
 
     The Geismar plant is integrated with a larger chemical manufacturing
complex owned by Allied-Signal, Inc. ("Allied"). Under the Geismar Services
Agreement, PCS Nitrogen and Allied provide certain support services to each
other, including the provision of utilities, the discharge of wastewater,
security and emergency services, and other essential services. PCS Nitrogen
believes that most of the services that PCS Nitrogen requires are available from
other sources, if necessary. However, the termination of, or the need to
replace, certain of the services provided (such as steam, well water supply and
dock services) could, in the aggregate, involve potentially significant capital
expenditures, increased operating costs and disruptions to the operations of the
Geismar plant.
 
                                       I-6
<PAGE>   8
 
     BP Chemicals Inc. ("BPC") operates the Lima plant on PCS Nitrogen's behalf
under an operating agreement that can be terminated by either party with one
year notice. PCS Nitrogen's payments to BPC under the operating agreement
generally are intended to approximate BPC's previous cost of operating the Lima
plant and are made through the reimbursement of expenses incurred by BPC in
providing such operating services. In addition, due to the mutual
interdependence of the Lima plant and BPC's operations, PCS Nitrogen and BPC
have agreed to provide each other with certain manufacturing support services at
cost pursuant to a contract extending for as long as the plants continue to
operate and either party is required to provide support services thereunder.
 
     PCS Nitrogen uses contract labor personnel provided by Augusta Service
Company, Inc., which is owned 50% by PCS Nitrogen and 50% by DSM Chemicals North
America, Inc. ("DSM"), to provide purchasing, stores and spare parts management,
maintenance, repair and shipping services for the Augusta plant.
 
RAW MATERIALS
 
     Natural gas is the primary raw material used for the production of ammonia
and, as a result, virtually all of PCS Nitrogen's other nitrogen products. The
purchase and transportation of natural gas accounts for approximately 40% of PCS
Nitrogen's total domestic production cost. PCS Nitrogen's natural gas strategy
is to purchase approximately one-third of its natural gas in the spot market or
on short-term contracts, one-third of its natural gas pursuant to fixed-price
physical contracts, reserves in the ground or forward contracts which fix the
price of future deliveries, and the remaining one-third of its natural gas in
Trinidad using a pricing formula related to the market price of ammonia. With
the exception of the Trinidad facility, PCS Nitrogen purchases nearly all its
natural gas from producers or marketers at the point of delivery of the natural
gas into the pipeline system, then pays the pipeline company and, where
applicable, the local distribution company to transport the natural gas to PCS
Nitrogen's facilities. Approximately 85% of PCS Nitrogen's domestic consumption
of natural gas is delivered pursuant to firm transportation contracts which do
not permit the pipeline or local distribution company to interrupt service to,
or divert natural gas from, the plant.
 
PCS JOINT VENTURE
 
     The Company indirectly holds all outstanding interests in a limited
partnership (the "PCS Joint Venture") doing business in Florida as Florida
Favorite Fertilizer and in Georgia and Alabama as Farmer's Favorite Fertilizer.
PCS Joint Venture manufactures, processes and distributes fertilizer and other
agricultural supplies from plants located in Florida, Alabama and Georgia.
 
                                       I-7
<PAGE>   9
 
MARKETING
 
     The following table summarizes the Company's net sales revenue of potash,
phosphate and nitrogen products in the past three calendar years:
 
<TABLE>
<CAPTION>
                                                               1997       1996       1995
                                                              -------    -------    -------
                                                                 (THOUSANDS OF DOLLARS)
<S>                                                           <C>        <C>        <C>
Potash
  Canada....................................................   14,460     14,507     12,483
  United States.............................................  195,780    143,137    128,594
  Canpotex..................................................  229,666    184,025    221,169
  Other.....................................................   64,261     61,526     53,686
Phosphates
  Canada....................................................   24,268     17,672     23,461
  United States.............................................  632,616    564,074    247,127
  PhosChem..................................................  261,502    275,644    128,320
  Other.....................................................   35,223     34,575     18,282
Nitrogen
  Canada....................................................    2,879      --         --
  United States.............................................  795,158    108,708     22,958
  Other.....................................................   70,116      --         --
Florida Favorite Fertilizer.................................   57,156     58,004     55,261
</TABLE>
 
     The following table summarizes the Company's net sales revenue from
products, by category:
 
<TABLE>
<CAPTION>
                                                               1997       1996       1995
                                                              -------    -------    -------
                                                                 (THOUSANDS OF DOLLARS)
<S>                                                           <C>        <C>        <C>
Potash......................................................  504,167    403,196    421,002
Florida Favorite Fertilizer.................................   57,156     58,004     55,261
Phosphates
  Liquid Fertilizers........................................  277,636    239,716    106,330
  Solid Fertilizers (DAP, MAP, GTSP)........................  362,625    379,326    151,152
  Animal Feed...............................................  191,016    186,145     94,477
  Phosphate Rock, Industrial Products.......................  122,333     86,777     60,161
Nitrogen
  Ammonia...................................................  376,972    108,708     22,958
  Urea......................................................  209,825      --         --
  Nitrogen Solutions........................................  162,885      --         --
  Other.....................................................  118,470      --         --
</TABLE>
 
     Fourth quarter gross margin for 1997 was $79.4 million for the potash
operations, $48.6 million for the phosphate operations and $8.6 million for the
nitrogen operations. The Company has a diversified customer base, and apart from
sales to Canpotex Limited ("Canpotex") and Phosphate Chemicals Export
Association, Inc. ("PhosChem"), no one customer accounted for as much as 10% of
the Company's sales in 1997.
 
     The following table summarizes average prices per tonne received by the
Company on sales of potash in the past five calendar years expressed as a
percentage of 1993 base prices:
 
<TABLE>
<CAPTION>
                                                     1997    1996    1995    1994    1993
                                                     ----    ----    ----    ----    ----
<S>                                                  <C>     <C>     <C>     <C>     <C>
North America....................................     106      92      97     105     100
Offshore.........................................     128     128     121     110     100
</TABLE>
 
     Potash from the Company's Saskatchewan mines produced for use outside North
America is sold exclusively to Canpotex. PCS Sales (Canada), Inc. executes
offshore marketing and sales for the Company's
 
                                       I-8
<PAGE>   10
 
New Brunswick potash and executes marketing and sales for the Company's potash,
phosphate and nitrogen products in Canada. PCS Sales (USA), Inc. executes
marketing and sales for the Company's potash, phosphate and nitrogen products in
the United States. PhosChem, an association formed under the Webb-Pomerene Act
(United States), is the principal vehicle through which the Company executes
offshore marketing and sales for its phosphate fertilizers.
 
     Ammonia, urea, ammonium nitrate and nitrogen solutions are sold as
fertilizers to agricultural customers and to industrial customers for various
applications, while nitric acid is sold to industrial customers as an
intermediate chemical feedstock.
 
     In the recent past, fertilizer prices have been volatile. No assurance can
therefore be given that the average market prices for the Company's fertilizer
products will continue at current levels.
 
NORTH AMERICAN MARKETING
 
     In 1997, North American net sales revenue from potash products represented
9% of the Company's net sales revenue, substantially all of which was
attributable to potash customers in the United States. Typically, North American
potash sales of the Company are greatest in the second calendar quarter. The
Company has no material contractual obligations in connection with North
American sales to sell potash in the future at a specified price.
 
     In 1997, North American net sales revenue from phosphate products
represented 28% of the Company's net sales revenue, substantially all of which
was attributable to phosphate customers in the United States. Of that amount,
56% represented the Company's sales of fertilizer products and 44% represented
the Company's sales of nonfertilizer and feed products. Typically, North
American phosphate product sales are greatest in the first and second calendar
quarters. In 1997, the majority of PCS Phosphate's phosphate product sales were
made on the spot market, with the balance made under short-term contracts and a
limited number of sales made pursuant to multi-year contracts. The Company's
contractual sales of phosphates are generally made pursuant to annual sales
contracts. The Company has no material contractual obligations in connection
with North American sales to sell phosphate in the future at a specified price.
 
     In 1997, North American net sales revenue from nitrogen products
represented 34% of the Company's net sales revenue and PCS Nitrogen's industrial
products accounted for approximately 33% of its nitrogen revenue and 49% of its
gross margin. Typically, North American nitrogen product sales are greatest in
the second calendar quarter. In 1997, the majority of PCS Nitrogen's nitrogen
product sales were made on the spot market, with the balance made under
short-term contracts and a limited number of sales made pursuant to multi-year
contracts. The Company has no material contractual obligations in connection
with North American sales to sell nitrogen in the future at a specified price.
 
     Ammonia purchased by PCS Nitrogen which is not used in the Company's
operations is sold to third party customers by PCS Sales (USA), Inc.
 
     The primary customers for fertilizer products are retailers, dealers,
cooperatives, distributors and other fertilizer producers. Such retailers,
dealers and cooperatives have both distribution and application capabilities.
The primary customers for industrial products are chemical product
manufacturers.
 
     At December 31, 1997, the Company's North American sales were handled by 74
employees in Chicago, Illinois and various other locations in the United States,
and 23 employees in Saskatoon, Saskatchewan.
 
OFFSHORE MARKETING
 
     Potash produced by the Company in Saskatchewan for sale abroad is sold to
Canpotex, which is owned in equal shares by the three potash producers in the
Province of Saskatchewan (including the Company). Canpotex, which was
incorporated in 1970 and commenced operations in 1972, acts as an export company
and as a unified marketing force for all Saskatchewan potash production in the
offshore marketplace. Each shareholder of Canpotex has an equal voting interest
as a shareholder and through its nominees on the board of directors. The Company
and the other shareholders of Canpotex have agreed that, as long as they are
 
                                       I-9
<PAGE>   11
 
members of Canpotex, and with respect to potash produced in Canada, they will
not make offshore sales independently. The Company's production from New
Brunswick has been exempted from this requirement by members of Canpotex. Any
member may terminate its membership in Canpotex at specified times of the year
on six months notice.
 
     In general, Canpotex sales are allocated among the producers based on
production capacity. If a shareholder cannot satisfy demand for potash by
Canpotex, the remaining shareholders are entitled to satisfy the demand pro rata
based on their allotted production capacity. The Company currently supplies
57.5% of Canpotex's requirements. Canpotex sells potash to government agencies
and private firms pursuant to six-month contracts at negotiated prices or by
spot sales.
 
     The following table sets forth the percentage of sales by Canpotex for the
past three calendar years in the various geographical regions:
 
<TABLE>
<CAPTION>
                                                              1997    1996    1995
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Asia........................................................   72%     70%     78%
Latin America...............................................    14      14       8
Oceania.....................................................     9      11      10
Europe......................................................     5       5       4
Other.......................................................    --      --      --
                                                              ----    ----    ----
Total.......................................................  100%    100%    100%
                                                              ====    ====    ====
</TABLE>
 
     For 1997, revenue from offshore sales of potash from the New Brunswick
mine, through PCS Sales (Canada), Inc., represented 2.8% of the net sales of the
Company; sales to Canpotex represented 9.8% of the net sales of the Company in
1997.
 
     Since 1975, PhosChem has been the principal vehicle for United States
exports of phosphate fertilizers. Since at least 1985, PCS Phosphate, IMC-Agrico
Company ("IMC-Agrico"), a joint venture between IMC Global Inc. and
Freeport-McMoRan Resources Partners (or its predecessors) and, until the
Company's acquisition of White Springs, OxyChem, have been members. On October
1, 1997, Mississippi Phosphates Corporation ("MissChem") became a member. In
addition, effective April 1, 1998, Mulberry Corporation will become a member.
The PhosChem members have agreed to export their fertilizer products exclusively
through PhosChem, except for exports to Canada or to any member state of the
European Union or the European Economic Area, sales of superphosphoric acid to
the Former Soviet Union (the "FSU") and sales to certain buyers affiliated with
members. Historically, PhosChem negotiated prices and other terms for the export
sale of fertilizer products. According to the terms of a PhosChem agreement
effective January 1, 1995, IMC-Agrico is responsible for the marketing of solid
fertilizers (DAP, MAP and GTSP), and PCS Phosphate, or its sales affiliate (PCS
Sales (USA), Inc.), is responsible for the marketing of liquid fertilizer
products (MGA) to export countries. Total P(2)O(5) sales for 1997 were
apportioned as follows: 71.0% to IMC-Agrico, 2.1% to MissChem and 26.9% to PCS
Phosphate. The PhosChem arrangement relies on the sales forces of IMC-Agrico and
PCS Sales (USA), Inc. for sales of solids and liquids, respectively. The
PhosChem agreement will be in effect through December 31, 1998, and subject to
renewal thereafter. If the PhosChem agreement is not renewed, the Company does
not believe the disbanding of PhosChem would materially affect the Company's
sales of fertilizer, but there can be no assurance that, if PhosChem were to be
disbanded, the Company would be able to find alternative outlets for its
products or sell its products at prices or on terms similar to those expected to
be obtained by PhosChem. The Company's estimated 1998 PhosChem allocation is
28.09%.
 
     Revenue from sales to PhosChem accounted for approximately 11% of the
Company's net sales in 1997. All of the Company's phosphate sales to China and
India were made through PhosChem. Most of the Company's sales of phosphate
products to China are made to the central purchasing authority of the Chinese
government. Sales in India were made to many independent buyers.
 
                                      I-10
<PAGE>   12
 
     The following table sets forth the percentage of sales of PhosChem for the
past three calendar years in the various geographical regions:
 
<TABLE>
<CAPTION>
                                                      1997    1996    1995(1)
                                                      ----    ----    -------
<S>                                                   <C>     <C>     <C>
Asia................................................   88%     82%      75%
Latin America.......................................     8      17       13
Europe..............................................    --       1        3
Mid East............................................     1      --        2
Africa..............................................    --      --        2
Other...............................................     3      --        4
                                                      ----    ----     ----
Total...............................................  100%    100%     100%
                                                      ====    ====     ====
</TABLE>
 
---------------
(1) Percentages do not total 100% as a result of rounding.
 
     With respect to offshore sales of nitrogen, ammonia and urea sales
predominate and originate primarily from Trinidad, with other sales coming from
purchased product locations. During the March-December 1997 period, 8% of
nitrogen net sales revenue related to offshore sales.
 
     Offshore sales are subject to those risks customarily encountered in
foreign operations, including (i) fluctuations in foreign currency exchange
rates, (ii) changes in currency and exchange controls, (iii) the availability of
foreign exchange, (iv) laws, policies and actions affecting foreign trade and
(v) other economic, political and regulatory policies of foreign governments.
 
DISTRIBUTION AND TRANSPORTATION
 
     The Company has an extensive infrastructure and distribution system to
transport and store its products. The Company owns approximately 1,400 rail cars
and leases approximately 3,800 additional rail cars.
 
     Transportation costs add significantly to the total amounts paid by
purchasers of potash. Producers have a definite advantage in markets close to
their sources of supply (e.g. Saskatchewan producers in the Midwestern United
States, New Brunswick producers on the U.S. Eastern Seaboard and New Mexico
producers in the Southern and Western United States). International shipping
cost variances permit offshore producers (including the FSU, Germany, Israel and
Jordan) to compete effectively in some of the Company's traditional markets.
 
     Most of the Company's potash for North American customers is shipped by
rail. Shipments are also made from each of the Company's Saskatchewan mines to
Thunder Bay, Ontario, for shipment by lake vessel to the Company's warehouses
and storage facilities in Canada and the United States.
 
     Potash from the New Brunswick mine is shipped primarily by ocean-going
vessel from the Port of Saint John, although truck and rail transport are also
used for North American customers.
 
     In the case of the Company's sales to Canpotex, potash is transported by
rail principally to Vancouver, British Columbia, where port facilities exist for
storage pending shipment overseas. The Company has an equity interest in
Canpotex Bulk Terminals Limited, which is a part owner of these port facilities.
The Company, through Canpotex, has an interest in the development of a port
facility located in Portland, Oregon which became operational during 1997.
 
     With respect to phosphates, the Company leases a shipping terminal in
Morehead City, North Carolina, which receives and stores raw materials for, as
well as the products manufactured by, the Aurora facility. The Company owns nine
barges (four used for solid products, two for phosphoric acid, one for sulfuric
acid and two for sulfur) and three tug boats, which are used to transport
materials between its Aurora facility and Morehead City. Raw materials and
products are also transported to and from the Aurora facility by rail. The
Company transports sulfur it purchases from Canada in large, dedicated unit
trains. Both CSX Corporation and Norfolk Southern Corporation serve the Aurora
facility. The Company believes that its location and diversified transportation
and terminalling capabilities put it in a comparable position to most of its
Florida
 
                                      I-11
<PAGE>   13
 
competitors in purchasing sulfur. In December 1997, the Company entered into a
ten-year supply contract with an offshore supplier to supply a portion of the
Company's sulfur requirements. The Company receives ammonia for its phosphate
operations at Aurora through its ammonia terminal in Savannah, Georgia; the
ammonia is shipped by rail from Savannah to the Aurora facility.
 
     Sulfur is delivered to the White Springs Facility by unit trains from
Canada and by rail from multiple domestic sources. The Company receives ammonia
for its phosphate operations at White Springs through its ammonia terminal in
Savannah, Georgia; ammonia is shipped by rail from Savannah to the White Springs
Facility. The Norfolk Southern Corporation is the only railroad serving the
White Springs Facility. Most of the phosphoric acid and chemical fertilizers
produced at the White Springs Facility are shipped to domestic destinations by
rail. The Company also ships some of its phosphoric acid, chemical fertilizers
and animal feed products, produced at the White Springs Facility, through the
bulk terminal located in Jacksonville, Florida, for offshore sales.
 
     The Company makes domestic deliveries of animal feed products (bulk and
bagged) by rail or truck from its manufacturing facilities and from several
warehouses supplied from its manufacturing facilities.
 
     The Company distributes its nitrogen products by barge, railcar and truck
to its customers and through its strategically located storage terminals in high
consumption areas. The Company leases or owns approximately 50 nitrogen terminal
facilities with an aggregate storage capacity of approximately 600,000 tons of
product. The terminals provide off-season storage and also serve local dealers
during the peak seasonal demand period.
 
     The Company distributes products from the Trinidad plant to markets in
Latin America and Europe in addition to the United States. The Company's
distribution operations in Trinidad employ two long-term chartered ocean-going
vessels and utilize spot charters as necessary for the transportation of
ammonia. All bulk urea production is shipped through third-party carriers.
 
COMPETITION
 
     The markets for potash, both domestic and foreign, are highly competitive.
Since potash is a commodity, producers must compete based on price and service
(e.g., delivery time and ability to supply all grades). Apart from competitive
pricing, the Company's principal method of competition is the quality of service
it provides to customers. Among other things, the Company provides quality
service by maintaining warehouses and leasing rail cars to enhance its delivery
capability. The high cost of transporting potash limits competition in various
areas.
 
     The Company's potash competition includes two producers in Saskatchewan,
two other significant producers in North America and potash producers located
outside North America in the FSU, Israel, Jordan, Germany and France. Because of
the high capital cost and lead time required to construct a new mine, the
Company's principal competition is expected to continue to come from the owners
of existing mines.
 
     Most phosphate products, particularly solid fertilizers, are commodities,
with little or no product differentiation, and thus trade on the basis of prices
determined in highly competitive markets. The vast majority of the United States
phosphate rock not mined by the Company is produced in central Florida,
southeast of Tampa, and most of the United States phosphate processing capacity,
other than at Aurora, is located in Florida and along the coast of the Gulf of
Mexico.
 
     The Company's principal advantage at Aurora in competing with other
producers is that it operates integrated phosphate mine and phosphate processing
complexes while most of its competitors are required to ship phosphate rock by
rail or truck from their mines to their chemical processing plants, thus
incurring substantially higher transportation costs. In addition, ore at Aurora
is of a more uniform grade and is found in thicker seams than that in central
and south Florida.
 
     As a result of its location in North Carolina and the relatively high cost
of transportation, the Company's U.S. phosphate sales from Aurora have a natural
advantage in the Northeast, mid-Atlantic and eastern Midwest regions, while
White Springs and other Florida producers have a natural advantage in the South,
and
 
                                      I-12
<PAGE>   14
 
Gulf coast producers have a natural advantage in areas of the Midwest accessible
to barge traffic up the Mississippi River.
 
     The Company also competes with governmental enterprises and independent
phosphate producers in important exporting countries, including Morocco,
Tunisia, Jordan and South Africa.
 
     Although there has been extensive consolidation and privatization
worldwide, substantial competition exists in the nitrogen industry. The Company
competes domestically with a broad range of companies in the production and sale
of nitrogen products, including subsidiaries of larger chemical companies, farm
cooperatives, integrated energy companies and independent fertilizer companies.
Because fertilizer is a commodity, competition takes place largely on the basis
of price and delivery. The relative cost of, and availability of transportation
for, raw materials and finished products to manufacturing facilities and markets
are important competitive factors.
 
     The Company also competes with foreign companies whose nitrogen products
are imported into the United States. Although diminishing in number, various
foreign competitors receive subsidies from their governments. Some countries
also have natural gas supplies that are surplus to domestic demand. This surplus
natural gas may have a low alternative value and, when used as feedstock for the
manufacture of ammonia and urea, can result in low-cost production. These
low-cost products are being imported into the U.S. and compete with domestically
manufactured nitrogen fertilizers, including the Company's. In addition, other
importers subsidized by their governments may import products into the U.S. for
reasons not related to U.S. fertilizer market conditions, such as a need to
obtain U.S. dollars.
 
     The Company's nitrogen production capability is the largest in the Western
Hemisphere. The Company's domestic nitrogen plants serve agricultural markets
with a diversified crop base that spans a lengthy growing season and chemical
industrial manufacturers located throughout the U.S. Those plants are
strategically located in agricultural and industrial end-use markets in the
Southeast, Midwest and Gulf Coast regions. The Company believes that it is more
economical to transport natural gas, the primary raw material in the production
of nitrogen fertilizers and chemicals, to plants situated in the product markets
than to transport such products over long distances. Several of the Company's
domestic nitrogen plants are located closer to their primary customers than are
their competitors. The Company concentrates its nitrogen marketing efforts on
these nearby markets where lower transportation costs result in better margins.
The Company believes that the number and geographic diversity of its nitrogen
plants provide competitive advantages in manufacturing, distribution, marketing,
customer service and other areas when compared to competitors controlling only a
few facilities. In addition, the industrial demand for nitrogen products is
typically less volatile and follows different demand cycles than agricultural
demand for fertilizer. The Company believes that its industrial sales add
stability to its revenue and are a desirable complement to agricultural demand.
 
EMPLOYEES
 
     At December 31, 1997, the Company actively employed 5,751 persons, of whom
2,028 were salaried and 3,723 were hourly paid. Of these employees, the
Company's potash operations employed 1,550 people, the phosphate operations
employed 2,648 people, the nitrogen operations employed 1,258 and 113 people
were employed at PCS Joint Venture. The corporate office had a staff of 85 and
97 people were employed in the Company's sales group.
 
     The Company has entered into nine collective bargaining agreements with
labor organizations representing employees. The collective bargaining agreements
at the Allan, Cory and Patience Lake divisions expire on April 30, 2000. The
Lanigan agreement expired on January 31, 1998. The Company and the Rocanville
Potash Employees Association have a contract that expires on May 31, 1998. The
agreement between IMC and the union representing the employees at the Esterhazy
mine expired on January 31, 1998. Negotiations have commenced for new collective
bargaining agreements for the Lanigan and Esterhazy mines. The Company's New
Brunswick and Aurora operations are non-union. The collective bargaining
agreement with the union representing employees at the White Springs plant
expires on December 1, 2000. PCS Nitrogen has three locations with collective
bargaining agreements: Clinton, which contract expires July 31, 1999; Memphis,
which contract expires September 17, 2000; and LaPlatte, with a new contract
that expires
                                      I-13
<PAGE>   15
 
January 31, 2003. In addition, the agreement between BPC and the union
representing employees at the Lima plant expires September 30, 2000. The Company
believes its relations with its employees to be good.
 
ROYALTIES AND CERTAIN TAXES
 
     Saskatchewan potash production is taxed at the provincial level under The
Mineral Taxation Act, 1983 (Saskatchewan). This tax consists of a base payment
and a profit tax. In addition to the Potash Production Tax, rental fees, taxes
and royalties are payable to the Province of Saskatchewan and municipalities by
potash producers in respect of potash reserves or production of potash in the
Province of Saskatchewan. The Company's tax, fees and royalty expenses were $68
million in 1997. On February 9, 1998, the government of the Province of
Saskatchewan announced a reduction of the top marginal rate of the profits
portion of the tax from 50% to 35%, effective January 1, 1998.
 
     The Company is subject to capital tax on its paid-up capital (as defined in
The Corporation Capital Tax Act of Saskatchewan). In addition, a resource
corporation in the Province of Saskatchewan pays a corporate capital tax surtax
based on the value of Saskatchewan resource sales. This surtax is only payable
to the extent that it exceeds the regular capital tax. In 1997, the Company paid
capital tax of $4.9 million and surtax of $11.9 million.
 
     The Company pays royalties to the New Brunswick government on the basis of
production from its New Brunswick mine. In addition, the Company pays municipal
taxes. The Company's expenses for such royalties and municipal taxes were $4.8
million in 1997.
 
     The Company does not make royalty payments in connection with its phosphate
and nitrogen operations.
 
INCOME TAXES
 
     PCS and certain subsidiaries are subject to federal and provincial income
taxes in Canada. By virtue of deductions with respect to non-capital losses
carried forward, capital cost allowance, Canadian development expense and earned
depletion allowance, such taxes have not yet become payable. However, PCS is
subject to the Large Corporations Tax. In 1997, PCS began to book a deferred tax
provision, at an effective tax rate of 35%, since the tax pools plus the
non-capital losses carried forward are less than the book value of the assets.
Assuming the status quo, the Company is likely to begin paying some Canadian
income tax before the end of the decade.
 
     The subsidiaries of the Company which operate in the United States are
subject to U.S. federal and state income taxes. By virtue of certain income tax
deductions available, these subsidiaries are not currently subject to regular
cash income taxes. However, they are subject to the Alternative Minimum Tax,
which may be carried forward indefinitely as a credit applied against future
regular income tax liabilities. In addition, the Company is subject to United
States withholding tax on certain payments received from its U.S. subsidiaries.
The tax rate for 1997 was approximately 21% of income before taxes, of which 9
percentage points represented deferred income taxes, and 12 percentage points
represented cash taxes. The tax rate for 1996 was approximately 24% of income
before taxes, of which 14 percentage points represented deferred income taxes
and 10 percentage points represented cash taxes.
 
     The Company's nitrogen subsidiaries operating in Trinidad are subject to
Trinidad taxes. The foreign tax rate applicable to the Trinidad operations for
1997 was approximately 37% of income before taxes.
 
RESEARCH AND DEVELOPMENT
 
     The Company maintains research and development facilities located in
Saskatoon, Saskatchewan, employing approximately 30 persons who concentrate on
improving efficiency in mine operations and product quality. Research continues
on the use of three-dimensional seismic methods and other geophysical tools to
detect geological disturbances in ore seams. The Company is also proceeding with
automation of mining machines. Other research includes measures to maintain and
enhance product quality in transit and at offsite storage facilities. The
Company supports research in agronomy through Potash & Phosphate Institute
programs.
                                      I-14
<PAGE>   16
 
     The Company continues to evaluate ways to more fully automate its phosphate
production facilities, including improvements to its sulfuric acid, phosphoric
acid and purified phosphoric acid plants. The Company is also exploring ways of
further debottlenecking its phosphate production facilities and selectively
adding capacity through technological enhancements.
 
     PCS Nitrogen is utilizing a newly designed balancing system for large, high
speed, rotating equipment to reduce downtime by improving motor stability and
decreasing bearing wear by decreasing vibration and lowering oil temperatures.
Other technology enhancements being considered for improving plant reliability
are expanded applications of dry gas seals, better material selections in
reforming and waste heat recovery systems and improved automation.
 
ENVIRONMENTAL MATTERS
 
     The Company's operations are subject to environmental controls in the form
of required permits and other applicable Canadian, U.S. and Trinidad and Tobago
federal, provincial, state and local laws and regulations. Such laws and
regulations govern, among other matters, air emissions, waste water discharges,
land use and reclamation and solid and hazardous waste management. The Company
believes that it is currently in material compliance with applicable
environmental laws and regulations and believes that it is well positioned to
meet anticipated requirements under these laws and regulations. Although
significant capital expenditures and operating costs have been incurred and will
continue to be incurred on account of these laws and regulations the Company
does not believe, except as otherwise set out herein, that such environmental
laws and regulations have had, or will have, a material adverse effect on its
business. However, the Company cannot predict the impact of new or changed laws
or regulations, including the recently-enacted potash decommissioning
regulations discussed below. The Company anticipates that its routine
expenditures related to environmental matters in 1998 will not differ materially
from the previous year.
 
ENVIRONMENTAL EXPENDITURES
 
Reclamation and Restoration Costs
 
     Site restoration and reclamation costs have been accrued for various sites.
At December 31, 1997, the Company had accrued $32.0 million for the Aurora,
North Carolina facility, $66.8 million for the White Springs, Florida facility,
$27.4 million for the Moab, Utah facility and $13.0 million for various sulfur
facilities. The idle sulfur facilities were part of the acquisition of Texasgulf
and are undergoing dismantlement and environmental restoration efforts. The
current portion of restoration and reclamation accrued in 1997 totaled $3.7
million. These amounts represent the Company's current estimate of potential
site restoration and reclamation costs which were last assessed in November
1996. The expenditures are generally incurred over an extended period of time.
 
     Annual environmental expenditures for reclamation and restoration during
the year ended December 31, 1997 were $67.0 million. Of this amount, $51.5
million was charged to operations, $4.9 million was capitalized and $10.6
million was charged against accrued reclamation costs.
 
Capping of By-product Gypsum Stacks
 
     In 1993, the State of Florida passed certain legislation requiring
companies to reduce the potential environmental hazards associated with
accumulations of by-product gypsum (gypsum stacks). The rule resulting from this
legislation requires companies to "cap" the gypsum stacks in order to reduce
seepage into groundwater when such stacks reach their design capacity (no
earlier than year 2010 for the Company) or after March 25, 2001 if groundwater
standards are not being met. At December 31, 1997, a balance of $35.4 million
was included in accrued reclamation costs for this gypsum stack capping
requirement. The obligations of White Springs regarding the gypsum stacks are
guaranteed by PCS.
 
     In North Carolina, on exhaustion of the mine's phosphate reserves,
disposition of the remaining gypsum must comply with the laws in place at that
time.
 
                                      I-15
<PAGE>   17
 
Other Environmental Costs
 
     The Company's operating expenses, other than reclamation and restoration
and gypsum stack capping, relating to compliance with environmental laws and
regulations governing ongoing operations were approximately $15.5 million for
the year ended December 31, 1997.
 
Capital Expenditures
 
     Each year the Company undertakes capital projects to improve pollution
control facilities. In 1997, a total of approximately $10.5 million in capital
expenditures was spent to meet the Company's environmental control objectives.
The Company expects that its capital requirements for environmental projects may
increase in the future due to increasingly stringent environmental regulations
arising from current and future requirements of law.
 
     PCS Phosphate's capital expenditures with respect to environmental matters
have been primarily related to air emission control, water management, land
reclamation and solid waste disposal. In 1992, PCS Phosphate completed
construction of a $30 million water management system at its Aurora mine and
plant site that the Company believes will address significant water management
issues with respect to both the mine and plant operations for the foreseeable
future. Under the Company's system of discharge minimization, PCS Phosphate
recycles water used in its slurries and cooling operations, adding new water as
needed.
 
     With respect to air emissions, the Company anticipates that additional
expenditures may be required to meet increasingly stringent U.S. federal and
state regulatory and permit requirements. These requirements include existing
and anticipated regulations under the U.S. federal Clean Air Act, particularly
the 1990 amendments thereto, and under state law. In particular, both federal
and state regulation of hazardous air pollutants are expected to require
additional pollution control equipment and increased operating expenditures at
some U.S. facilities. Further, the U.S. Environmental Protection Agency ("EPA")
has published new National Ambient Air Quality Standards for both ozone and
particulate matter which are more stringent than existing standards. Such
standards are being challenged in the U.S. District Court for the District of
Columbia. EPA has also proposed rules requiring the eastern most states to plan
for the reduction of ozone and nitrogen oxide transport across state lines.
 
     The federal operating permit program is also expected to require the
addition of enhanced emissions monitoring equipment at some facilities, as well
as the imposition of permit fees based upon facility air pollutant emissions. If
the Company undertakes facility expansion at its White Springs, Geismar, Lima
and/or certain other plants, a federal Prevention of Significant Deterioration
permit may be required. Such permits would impose certain restrictions on air
pollutant emissions from the expanded portions of such plants.
 
REGULATORY EVALUATION AND REMEDIATION
 
     In addition to environmental regulation of its present operations, the
Company also may incur costs and liabilities in connection with its and its
predecessors' past and present waste disposal practices and ownership and
operation of real property and facilities, as well as its mining activities. The
U.S. federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") and other U.S. federal and state laws impose liability
on, among others, past and present owners and operators of property at which
hazardous substances have been released into the environment and persons who
arrange for disposal of hazardous substances that are released into the
environment. Liability under these laws may be imposed jointly and severally and
without regard to fault or the legality of the original actions, although such
liability may be divided or apportioned according to various equitable and other
factors. In the course of its present and former operations, including those of
divested businesses, PCS Phosphate, White Springs and PCS Nitrogen have
generated and the Company will generate wastes that could result in liability
for the Company under these laws.
 
     An EPA contractor conducted a screening site inspection in November 1989 of
a portion of the Aurora facility in order to determine whether further
investigation or cleanup should be conducted. The contractor's report identified
certain pesticide and other contamination of the soil and potential migration
pathways for
 
                                      I-16
<PAGE>   18
 
contamination of surface water and, to a lesser degree, groundwater, and
recommended that the site be evaluated for cleanup. The Company is not aware of
any further action by EPA or its contractor at this site since the report of
this inspection was issued in March 1991. Another EPA contractor conducted a
screening site inspection in May 1990 on a site that includes the Company's
Marseilles, Illinois facility in order to determine whether further
investigation or cleanup of the site should be conducted. The contractor's
report identified certain contamination of the soil and potential migration
pathways for contamination of groundwater and surface water, but did not make
any recommendations for further action. Illinois Environmental Protection Agency
("Illinois EPA") visited the site in April 1995. During February 1996, the
Company received a CERCLA Site Inspection Report from Illinois EPA based on the
April 1995 visitation. Officials of the Company were also advised verbally, by
the Illinois EPA, that the site, which included the Marseilles facility, would
be given a "no further action" status. However, the Company has received no
written notice of this status from either EPA or Illinois EPA. The Company does
not know if any cleanup will ultimately be required at these two sites, and
consequently is unable to estimate the total costs of cleanup or its share of
such costs if a cleanup is ordered. During September 1995, an investigation of
the Saltville, Virginia facility was undertaken by EPA in connection with a
review of the former operations of Olin Corporation conducted in and around
Saltville. During October 1996, the Company received a copy of a Health
Consultation for the Former Hydrazine Plant of Olin Corporation. The only item
noted in the consultation report concerning the former hydrazine plant was the
presence of lead around a tank foundation. The Company plans to analyze the soil
at that tank location and to dispose of, in an appropriate manner, any soil
having elevated levels of lead. The Company has no information indicating that
any cleanup required in connection with the Aurora, Marseilles and Saltville
sites will have a material adverse effect upon the Company's financial condition
or results of operation. Further, the Company believes that if it has any
material liability for such costs, it would have claims against third parties in
connection with such liability. Any such claims would be based on statutory
and/or common law obligations of third parties, such as former owners, occupiers
or disposers.
 
     PCS Phosphate was initially named as a party in two cleanup matters
involving the Colorado School of Mines Research Institute ("CSMRI") in
connection with hazardous substances allegedly generated at some of the former
operations of CSMRI. During May 1995, Elf (USA) advised EPA that Elf (USA) was
handling the matter on behalf of Texasgulf and another former Elf (USA)
subsidiary, Texasgulf Metals and Minerals Co. On January 28, 1997, EPA issued a
notice that the required cleanup work at one of the sites had been completed.
 
     PCS Joint Venture and its general partner, Potash Corporation of
Saskatchewan (Florida) Inc. ("PCS Florida"), a wholly-owned subsidiary of the
Company, are subject to various environmental laws of the federal and local
governments in the United States, and from time to time investigations relating
to the enforcement of such laws. Currently, the Florida Department of
Environmental Protection ("FDEP") is conducting an investigation into soil and
ground water contamination of a PCS Joint Venture fertilizer plant located in
Lakeland, Florida and certain adjoining property. Assessment of the
contamination of the plant site and of certain adjoining property is continuing.
No connection between the operations of PCS Joint Venture (or its predecessor
Florida Favorite Fertilizer, Inc.) and the contamination has been established.
The magnitude of any liability which PCS Joint Venture and PCS Florida may have
regarding the Lakeland, Florida plant has not yet been determined.
 
     In June 1994, the Georgia Department of Natural Resources, Environmental
Protection Division, wrote to PCS Joint Venture seeking certain environmental
information regarding its Moultrie, Georgia location. In October 1994, an
additional request for information was received from the EPA pursuant to Section
104(e) of CERCLA. Responses to both requests have been provided by PCS Joint
Venture. Based on a preliminary investigation, there appears to be
lead-contaminated soil at the site. However, a complete assessment of the site
has not yet been completed, and the full nature and extent of the contamination
cannot be quantified at this time. On September 30, 1997, the Georgia Department
of Natural Resources, Environmental Protection Division, requested that Farmers
Favorite Fertilizer submit a Compliance Status Report by March 30, 1998. Farmers
Favorite Fertilizer has engaged outside consultants to assist in the preparation
of such report.
 
     PCS Joint Venture is co-operating with regulatory authorities in their
investigations of the Lakeland and Moultrie sites. It is also attempting to
determine the number and location of other parties who may be liable
                                      I-17
<PAGE>   19
 
for remediation of these sites. However, because site assessments are ongoing
and because other parties may be liable for some or all costs of remediation,
the ultimate liability of PCS Joint Venture has not yet been determined.
 
     In connection with certain recent modifications and additions to the
Geismar plant, consultants retained by PCS Nitrogen incorrectly estimated
emissions levels for nitrous oxide ("N0x") associated with such projects. As a
result, preconstruction permit applications required for such projects under the
federal Clean Air Act were not filed by PCS Nitrogen. Pursuant to a consent
order with the Louisiana Department of Environmental Quality ("LDEQ"), such
applications were filed and LDEQ has issued both of the required preconstruction
permits. Such permits do not require additional material N0x emissions controls.
 
     In February 1996, the North Carolina Department of Environment, Health and
Natural Resources notified PCS Nitrogen that the Navassa, North Carolina
terminal site had been included on the state's Inactive Hazardous Waste Sites
Priority List. Listed sites normally are subject to detailed assessment of the
environmental condition of concern and the feasible remediation options. PCS
Nitrogen nonetheless currently expects that the cost and liability, if any,
associated with the Navassa terminal site will not have a material adverse
effect on the Company.
 
     In 1991, after extensive environmental assessments, PCS Nitrogen installed
a remediation system at the Memphis plant to address certain contaminants found
in the groundwater. Although the system was installed voluntarily and had been
in operation for over a year, the Tennessee Department of Environment and
Conservation ("TDEC") in 1993 proposed to include the Memphis plant on the
state's list of Inactive Hazardous Substance Sites. The Tennessee Solid Waste
Disposal Control Board rejected a similar proposal made by the TDEC in 1989.
Listed sites normally are subject to detailed assessment of the environmental
condition of concern and the feasible remediation options, but that process may
not be fully appropriate as to the Memphis plant in view of PCS Nitrogen's
existing remediation system. Nevertheless, in 1994, PCS Nitrogen entered into a
voluntary consent agreement and order with the TDEC providing for oversight and
possible modification by the TDEC of PCS Nitrogen's current remedial action,
including authority for requiring assessments of soils associated with PCS
Nitrogen's wastewater treatment system. There can be no assurance that the
Memphis plant will not be listed in the future, but in the event that it is
listed, PCS Nitrogen expects that the compliance costs will not have a material
adverse effect on the Company.
 
     In 1990, PCS Nitrogen implemented a voluntary program to assess groundwater
quality at the Clinton plant due to the presence of nitrates in the groundwater.
PCS Nitrogen provided the results of its investigation to the Iowa Department of
Natural Resources ("IDNR"). Pursuant to negotiations with the IDNR, the Company
has conducted and will conduct further investigations and, if necessary,
remediation. Further, the Clinton plant site is immediately adjacent to the
Chemplex Superfund site at which groundwater remediation is currently being
conducted. Certain volatile organic compounds associated with the Chemplex site
have been detected in small amounts in the groundwater at the Clinton plant. It
is also possible that remediation activities at the Chemplex site could result
in increased levels of nitrates in groundwater at the Clinton plant. Recently,
IDNR officials contacted PCS Nitrogen concerning elevated levels of nitrates in
a receiving water down gradient of the Clinton plant. PCS Nitrogen and such
officials are discussing further efforts to more clearly identify potential
sources at the Clinton plant and to stem nitrate level increases. Nonetheless,
based on currently available information, PCS Nitrogen expects that the cost of
the further assessment and any remediation of nitrates will not have a material
adverse effect on the Company.
 
     The Lima plant discharges wastewater to the Ottawa River under a National
Pollutant Discharge Elimination System permit issued by the Ohio Environmental
Protection Agency ("OEPA"). When the permit was renewed in 1989, the OEPA
initially proposed to impose substantial limitations on certain substances
present in the wastewater, based on concerns over the already impaired quality
of the river water as a result of industrial or municipal discharges. The OEPA
later agreed in an administrative settlement to a five-year permit for the Lima
plant with discharge conditions that were more acceptable to the Lima plant's
prior
 
                                      I-18
<PAGE>   20
 
owner, BP Chemicals Inc. The permit expired in 1994, was administratively
extended and renewed by the OEPA in July 1996, for a shorter than customary term
ending October 31, 1997. PCS Nitrogen has filed an application for permit
renewal and is entitled to operate under the current permit until such
application is processed and acted upon. While PCS Nitrogen does not expect that
substantial additional discharge restrictions will be imposed in conjunction
with the next renewal, the OEPA may again seek to impose a reduction in the
permitted discharge levels. Such restrictions may require the installation of
improved treatment technology, the cost of which will depend on the limitations
ultimately imposed.
 
     DSM, which conducts manufacturing operations immediately adjacent to the
Augusta plant, is subject to certain corrective action requirements under its
Resource Conservation and Recovery Act ("RCRA") hazardous waste management
permit. Pursuant to these requirements, the Georgia Department of Natural
Resources, Environmental Protection Division ("GEPD") identified a number of
solid waste management units on DSM's property, including several on property
formerly leased from DSM by PCS Nitrogen, for assessment and potential
remediation. During 1996, PCS Nitrogen purchased the leased land and the GEPD
required PCS Nitrogen to enter into a corrective action consent order for the
performance of the assessment and remediation actions which would have been
required of DSM with respect to the purchased land under its RCRA permit. PCS
Nitrogen has submitted a draft remediation investigation work plan to the GEPD
providing for the assessment of the solid waste management units identified by
the GEPD at the Augusta plant. Because the draft work plan must be approved by
the GEPD prior to implementation, PCS Nitrogen is currently not able to
accurately estimate the amount of costs that will be incurred. Based on
currently available information, however, PCS Nitrogen does not expect that such
costs will have a material adverse effect on the Company.
 
     The Parliament of Trinidad and Tobago is considering legislation providing
for the increased regulation of environmental matters. Due to the uncertain and
emerging nature of this legislation and the regulations to be issued thereunder,
PCS Nitrogen is not currently able to accurately predict the impact that such
legislation and associated regulations may have on its operations in Trinidad.
However, PCS Nitrogen does not currently expect that such legislation or
regulations will have a material adverse effect on the Company.
 
PERMITS
 
     A significant portion of the Company's phosphate reserves in Aurora, North
Carolina is located in wetlands and, under the U.S. federal Clean Water Act, a
permit must be obtained from the U.S. Army Corps of Engineers (the "Corps")
before mining activity that will disturb the wetlands may occur. As part of the
permit process for PCS Phosphate, the Corps issued a draft Environmental Impact
Statement in January 1994 in which five alternative mine plans of PCS Phosphate
were identified and evaluated for their environmental and other impacts. During
May 1995, the Environmental Impact Statement was supplemented to add a sixth
alternative. All six alternatives would enable mining to continue for twenty
years at a mining rate of 5.4 million tonnes of phosphate rock per year. The
cost of mining varies under each of the alternatives, given the significance of
the costs of transporting the phosphate ore from the mine to the plants and of
transporting gypsum and clay to reclamation areas. By letter dated November 21,
1996, PCS Phosphate requested that the alternative which would disturb the least
amount of wetlands be approved by the Corps and that a permit be issued based on
such alternative. In 1997, PCS Phosphate received its required authorizations
from the State of North Carolina and on August 14, 1997, the Corps issued a
permit granting approval to mine certain areas described in the Environmental
Impact Statement through 2017. The permit contains a section on wetlands
mitigation approach and methods regarding wetland impacts associated with mining
covered by the permit. The Company has recently acquired additional land
adjacent to its Aurora, North Carolina facilities for this purpose. In order to
demonstrate the feasibility of such activities, as of December 31, 1997, the
Company had created or restored 2,418 acres of wetlands.
 
     In addition to the wetlands permit from the Corps, the Company also needs
additional authorizations from agencies of the State of North Carolina to
continue its mining activities in North Carolina. The Company is required to
have State mining permits that contain bonding and reclamation requirements. The
Company has a State mining permit for the areas presently being mined by the
Company that is effective through 2003, but this permit must be amended
periodically to add additional acreage during this period. The
                                      I-19
<PAGE>   21
 
Company also holds another mining permit from the State for the area of the
property that contains the wetlands covered by the permit issued by the Corps.
This State permit has been renewed until 2005.
 
     Gypsum is a byproduct of the production of phosphoric acid. Gypsum is
normally placed in above-ground storage areas called gypsum stacks. The gypsum
stacks at the White Springs Facility will continue to be used and when closed
will be covered or capped to the extent required under applicable regulations.
The Florida Phosphogypsum Rule permits the use of existing gypsum stacks until
they reach capacity, if groundwater standards are met as of and after March 25,
2001. Although the Company's management believes that it will be in compliance
with such Rule and as such should be allowed to continue using its three gypsum
stacks for their useful lives of 40 to 50 years, it is not certain how long
White Springs will be allowed to continue using its gypsum stacks beyond the
year 2001. A regulatory prohibition on use of existing stacks would result in a
closure/new stack construction cost in excess of $100 million.
 
     Lands mined by White Springs after July 1, 1975 and unmined lands used in
the mining operations after July 1, 1984 are subject to mandatory reclamation
requirements of the State of Florida. Wetlands must be reclaimed on an
acre-for-acre basis under the rules of the State of Florida Department of
Environmental Protection ("FDEP") unless otherwise provided in, or pursuant to,
a Memorandum of Agreement, dated February 1, 1995, between OxyChem and FDEP. The
cost of reclamation of mandatory lands is borne solely by White Springs. The
current practice of White Springs is to return most upland areas to commercial
pine plantation, which is the predominant pre-operation land use. Reclaimed
lands include uplands, wetlands and lakes.
 
     In 1996, White Springs completed a series of federal, state, and local
permitting actions effecting a major change in the regulation of the mining
operation and land reclamation. Pursuant to an agreement with FDEP, White
Springs will fund a land acquisition program for environmentally sensitive lands
in the region near its operations. This concept is referred to as "off-site
mitigation". Final approval of state plans to implement the agreement was
granted in 1996, as was a required modification of existing mining permits from
Hamilton County. White Springs made its first installment payment to the
wetlands acquisition fund in April 1997. The advisory team and the selection
team were formed during 1997. White Springs is considering seeking a
modification to its existing permit to allow for the continuation of mining
operations. In connection with such proposed modification, White Springs
officials have met with affected regulatory, commenting and participating
agencies, environmental organizations and other interested parties. Work on such
modification is expected to continue through 1998. FDEPs and Hamilton County's
approvals are valid for the life of the operations, and define operating and
reclamation standards for that term. Additional permit revisions incorporating
this change were secured from the Corps for federally-regulated wetlands mining.
The revised Corps permit covers operations through the year 2002. Further Corps
permitting will be necessary to apply the off-site mitigation concept to
remaining wetlands. Failure to achieve application of this concept to additional
Corps wetlands would result in higher reclamation costs if on-site wetlands were
required. Failure to secure the required permits under either on-site or
off-site mitigation would negatively affect reserves and costs.
 
POTASH DECOMMISSIONING REGULATIONS
 
     The environmental regulatory authorities in the Province of Saskatchewan
have enacted regulations to require decommissioning and reclamation plans and
financial assurances with respect to decommissioning by owners and operators of
mines. Pursuant to the regulations, the Company filed a decommissioning plan for
each of the Company's Saskatchewan mines with the responsible Minister in the
spring of 1997. These plans contained a proposal for financial assurance to
ensure completion of the plans and are subject to the approval of the Minister.
An approved financial assurance plan must be established by March 31, 1999, or
one year following approval of the decommissioning and reclamation plan,
whichever is later. An initial response to the proposed plans was received by
the Company in February 1998 and discussions with the environmental regulatory
authorities are continuing. Because of the uncertainty surrounding the structure
of the assurance mechanism, the Company is unable to accurately estimate the
financial implications to the Company.
 
                                      I-20
<PAGE>   22
 
GOVERNMENT REGULATIONS
 
     In September 1987, legislation was adopted in Saskatchewan that authorized
the government to control production at potash mines located in the Province of
Saskatchewan. The legislation, which has not taken effect but which can be
brought into effect by proclamation of the Cabinet of Saskatchewan, permits the
Cabinet, and the Potash Resources Board which would be created under such
legislation, to prescribe rates of potash production in Saskatchewan and to
allocate production among individual mines. In determining rates for individual
mines, the Potash Resources Board would take into account a mine's productive
capacity, the rate of production from the mine, the present and future inventory
and stockpile requirements for the mine, the portion of demand for potash that
has been fulfilled by the primary production of potash from the mine and any
additional factors that may be prescribed by regulation. Increases in production
capacity would be subject to the approval of the government of Saskatchewan. The
Company cannot predict at this time if or when the legislation will be
proclaimed or its effects on the results of the Company's operations.
 
EXECUTIVE OFFICERS OF THE COMPANY
 
     The name, age, period of service and position held for each of the
executive officers of the Company as at February 28, 1998 are as follows:
 
<TABLE>
<CAPTION>
                 NAME                     AGE   SERVED SINCE                POSITION HELD
                 ----                     ---   ------------                -------------
<S>                                       <C>   <C>            <C>
CHARLES E. CHILDERS....................   65        1987       Chairman of the Board,
                                                               President and Chief Executive Officer
JOHN GUGULYN...........................   62        1987       Senior Vice President, Administration
BARRY E. HUMPHREYS.....................   54        1976       Senior Vice President, Finance and
                                                               Treasurer
JOHN L.M. HAMPTON......................   44        1988       Senior Vice President, General Counsel
                                                               and Secretary
WAYNE R. BROWNLEE......................   45        1988       Senior Vice President, Expansion and
                                                               Development
BETTY-ANN L. HEGGIE....................   44        1981       Senior Vice President, Corporate
                                                               Relations
WILLIAM J. DOYLE.......................   47        1987       President, PCS Sales
GARY E. CARLSON........................   44        1997       President, PCS Nitrogen
GARTH W. MOORE.........................   49        1982       President, PCS Potash
PETER BRAUN............................   58        1977       Vice President, Audit
DENIS A. SIROIS........................   42        1978       Vice President and Corporate Controller
THOMAS J. WRIGHT.......................   65        1995       President, PCS Phosphate
</TABLE>
 
     All of the officers have had the principal occupation indicated for the
previous five years except as follows: Mr. Doyle was President of Potash
Corporation of Saskatchewan Sales Limited ("PCS Sales") and located in Chicago,
Illinois prior to 1995 and was Executive Vice President, Potash and Sales, of
the Company from 1995 until March 1997; Mr. Wright was President and Chief
Operating Officer of Texasgulf from 1988 to 1993 and President and Chief
Executive Officer from 1993 to April 1995. Prior to March 1997, Mr. Wright was
Executive Vice President, PCS Phosphate. On April 27, 1995, Mr. Hampton, Mr.
Brownlee, and Ms. Heggie were promoted from Vice President to Senior Vice
President, and Mr. Braun was promoted from Director, Internal Audit, to Vice
President. Prior to March 1997, Mr. Moore was Senior Vice President, Technical
Services of the Company and prior to April 1995, he was Vice President,
Technical Services. Mr. Carlson was Vice President of American Cyanimid,
International Agricultural Products Group from 1993 to June 1996 and was Senior
Vice President, Marketing of Arcadian from June 1996 to March 1997. Mr. Sirois
was Controller of the Company prior to 1997.
 
ITEM 3.  LEGAL PROCEEDINGS.
 
AGREEMENT SUSPENDING POTASH DUMPING INVESTIGATION
 
     In March 1987, the U.S. International Trade Commission made a preliminary
determination that there was a reasonable indication that the U.S. potash
producers had been injured by imports of Canadian potash,
                                      I-21
<PAGE>   23
 
assuming that Canadian potash had been "dumped" into the U.S. market at less
than "fair value". On August 26, 1987, the U.S. Department of Commerce
("Commerce") determined on a preliminary basis that Canadian potash was, or was
likely to be, sold in the United States at less than "fair value".
 
     On January 8, 1988, Commerce signed a suspension agreement with all of the
potash producers in Canada, suspending the dumping investigation by Commerce.
The agreement stipulates that each producer's minimum price for potash sold in
the United States is to be based upon a formula determined by Commerce for each
producer that is designed to limit any dumping by that producer in the future.
Compliance with the agreement is monitored by Commerce. The agreement can be
terminated without termination of the suspended investigation if Commerce
determines that sales are made below the price determined under the formula,
producers having 15% or more of the total Canadian volume or value exported into
the United States withdraw from the agreement, or the conditions of the
agreement are otherwise not being met, in which case the suspended investigation
could be resumed by Commerce.
 
CIVIL ANTITRUST COMPLAINTS
 
     In June, 1993, PCS and PCS Sales (Canada) Inc. ("PCS Sales (Canada)") were
served with a complaint relating to a suit filed in the United States District
Court for Minnesota against most North American potash producers, including the
Company. The complaint alleged a conspiracy among the defendants to fix the
price of potash purchased by the plaintiffs as well as potash purchased by the
members of a class of certain purchasers proposed by the plaintiffs. Similar
complaints were filed in the United States District Courts for the Northern
District of Illinois and the Western District of Virginia. On motion of the
defendants, all of the complaints were transferred and consolidated for
pre-trial purposes in the United States District Court for Minnesota. Amended
complaints were filed in March and April 1994. On January 12, 1995, the
Minnesota Federal Court granted the plaintiffs' motion for class certification.
The complaint sought treble damages in an unspecified amount and other relief.
PCS and PCS Sales filed a motion for summary judgment on December 22, 1995. On
January 2, 1997, Judge Richard H. Kyle issued an order granting the defendants'
motions for summary judgment and dismissing the lawsuit. The plaintiffs appealed
that order to the United States Court of Appeals for the Eighth Circuit, on
January 31, 1997. Oral arguments were heard on November 17, 1997.
 
     Additional complaints were filed in the California and Illinois State
Courts on behalf of purported classes of indirect purchasers of potash in those
states. PCS moved to dismiss the California State Court lawsuit for lack of
personal jurisdiction and the court ruled that it does not have personal
jurisdiction over PCS but that it does have personal jurisdiction over PCS
Sales. The case remains at an early stage; no merits discovery has taken place.
The parties have agreed to stay proceedings pending the outcome of the appeal to
the United States Court of Appeals for the Eighth Circuit. The Illinois State
Court dismissed the Illinois State Court complaint for failure to state a cause
of action. The Illinois plaintiff appealed that dismissal and that dismissal was
affirmed by the Appellate Court of Illinois on November 27, 1996. On January 15,
1997 the appellate court denied the plaintiff's request for rehearing. On
February 17, 1997, the plaintiff petitioned the Supreme Court of Illinois to
review the Appellate Court's decision. The Illinois Supreme Court denied that
petition on April 2, 1997.
 
LAKE CHARLES PLANT
 
     In connection with a 1992 incident at PCS Nitrogen's Lake Charles plant,
PCS Nitrogen's liability insurers, in September 1996, negotiated preliminary
settlements of substantially all of the civil litigation arising from the
incident. The settlements, which in the aggregate are within the policy limits
of PCS Nitrogen's liability insurance, have been finalized and approved by the
court as to fairness. There remain three lawsuits on appeal to the United States
Court of Appeals for the Fifth Circuit from the United States District Court for
the Western District of Louisiana against PCS Nitrogen arising from the
incident, which lawsuits were brought in July 1993 by former employees at the
Lake Charles plant who allege that they were wrongfully terminated following the
incident. Management and legal counsel believe that these lawsuits are without
merit, and that there will be no material adverse effect on the Company upon
their resolution.
 
                                      I-22
<PAGE>   24
 
FORMER ARCADIAN EXECUTIVE PROCEEDINGS
 
     On May 7, 1997, J. Douglas Campbell, Alfred L. Williams, Peter H. Kesser,
and David Alyea, former officers of Arcadian, filed lawsuits against PCS in the
United States District Court for the Western District of Tennessee. The
complaints allege that PCS breached employment agreements between Arcadian and
the officers and breached the related assumption agreement among PCS, PCS
Nitrogen, and Arcadian. In addition, Mr. Alyea's complaint names Charles
Childers, John Gugulyn, and John Hampton as additional defendants and alleges
that the defendants interfered with and conspired to interfere with his
employment agreement, and did not accurately state their intentions in entering
into the assumption agreement. The complaints of Mr. Campbell, Mr. Williams, Mr.
Kesser, and Mr. Alyea seek damages in excess of $22.2 million, $6.2 million,
$3.7 million, and $4.2 million, respectively. In addition, on October 14, 1997,
Charles Lance, a former officer of Arcadian Corporation, filed a lawsuit in the
same court against PCS also alleging breaches of his employment agreement and
the related assumption agreement. Mr. Lance seeks damages in an amount exceeding
$3.0 million. Each complaint also seeks certain additional unspecified damages.
Trial with respect to the original four plaintiffs' claims has been set for
August 17, 1998. Management of the Company, having consulted with legal counsel,
believes that the lawsuits will not have a material adverse effect on the
Company.
 
     On September 15, 1997, PCS and PCS Nitrogen filed an action in the Circuit
Court of Tennessee for Thirtieth Judicial District at Memphis against J. Douglas
Campbell, Peter H. Kesser, Alfred F. Williams, Charles W. Lance, Jr., and David
L. Alyea, for declaratory relief and damages. PCS and PCS Nitrogen allege that
the defendants, all former executives of Arcadian,committed breaches of their
fiduciary duties in the negotiation of, obtaining approval for, and execution of
the Employment Agreements each of them had with Arcadian. In addition, PCS has
sought a declaratory judgment with respect to the unenforceability of the
Employment Agreements. On October 14, 1997, the defendants removed this action
from the Circuit Court of Tennessee to the United States District Court for the
Western District of Tennessee. On October 21, 1997, the five defendants filed
counterclaims: (i) under the Employee Retirement Income Security Act of 1974, as
amended, against PCS Nitrogen, (ii) alleging that PCS and PCS Nitrogen
unlawfully interfered with their attainment of benefits under their Employment
Agreements, and (iii) incorporating by reference all claims asserted in their
individually filed complaints. The damages sought by the defendants in these
counterclaims appear substantially equivalent to the damages sought in their
individually filed suits as plaintiffs.
 
PORT AUTHORITY PROCEEDINGS
 
     On March 13, 1996, PCS Nitrogen, two other nitrogen producers, and up to 30
unidentified parties were named as defendants in a lawsuit filed in the name of
the Port Authority of New York and New Jersey (the "Port Authority") in New
Jersey state court. The lawsuit was actually filed by attorneys hired by the
Port Authority's subrogated insurance carriers. The Port Authority's insurers
are seeking to recover damages allegedly incurred as a result of the explosion
at the World Trade Center in New York City on February 26, 1993. The Port
Authority's insurers allege in their complaint that the two other named
defendants and one or more unidentified parties (as manufacturers of ammonium
nitrate), PCS Nitrogen and one or more unidentified parties (as producers of
urea), and one or more unidentified makers of nitric acid are liable under
various tort theories for unspecified property damages, business interruption
losses, lost rent and other damages allegedly incurred by the Port Authority as
a result of the World Trade Center explosion. The lawsuit was removed to federal
court in New Jersey. On February 7, 1997, the defendants filed a motion to
dismiss the suit for failure to state a claim upon which relief could be
granted. On December 19, 1997, that motion was granted and the complaint was
dismissed with prejudice. On January 15, 1998, the Port Authority appealed the
dismissal to the United States Court of Appeals for the Third Circuit. Although
neither the Port Authority nor its subrogated insurers have alleged or otherwise
revealed the amount of damages sought from PCS Nitrogen in the lawsuit, the Port
Authority stated in an affidavit submitted to the court in support of its motion
to disqualify its insurers' counsel that as of April 9, 1996, the Port Authority
had submitted to its insurers claims relating to the explosion totaling
approximately $340 million, of which the insurers had paid approximately $160
million. PCS Nitrogen is unaware of any basis for liability and intends to
continue to vigorously defend the lawsuit.
 
                                      I-23
<PAGE>   25
 
DOJ INVESTIGATIONS
 
     In 1993, PCS Nitrogen learned that the Antitrust Division of the Department
of Justice (the "DOJ") had initiated a grand-jury investigation of pricing
practices in the explosives industry. In response to a subpoena issued in that
investigation, PCS Nitrogen produced to the DOJ in 1994 and 1995 documents
concerning ammonium nitrate sold to explosives manufacturers. In late 1996 and
early 1997, PCS Nitrogen learned that the DOJ had begun contacting current and
former PCS Nitrogen employees seeking information concerning PCS Nitrogen's
pricing of ammonium nitrate in 1992. PCS Nitrogen is cooperating fully with the
DOJ investigation and has been informed by the DOJ that, based on currently
available information, neither PCS Nitrogen nor any of its current or former
directors, officers or employees is a target of the investigation. PCS Nitrogen
believes that neither it nor its employees have violated the antitrust laws and
that the DOJ's investigations are unlikely to result in a material adverse
effect on the Company.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     Not Applicable.
 
                                      I-24
<PAGE>   26
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
     The information under "Common Share Prices and Volumes" in the registrant's
1997 Annual Report is incorporated herein by reference.
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
     The information under "Selected Ten-Year Data" in the registrant's 1997
Annual Report is incorporated herein by reference.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
     The information under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the registrant's 1997 Annual Report is
incorporated herein by reference.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
     The Consolidated Financial Statements and notes thereto in the registrant's
1997 Annual Report are incorporated herein by reference.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
     None.
 
                                      II-1
<PAGE>   27
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     The information under "Election of Directors" in the Proxy Circular for the
Annual and Special Meeting of Shareholders in 1998 is incorporated herein by
reference. Information concerning executive officers is set forth under
"Executive Officers of the Company" in Part I.
 
ITEM 11.  EXECUTIVE COMPENSATION.
 
     The information under "Executive Compensation" in the Proxy Circular for
the Annual and Special Meeting of Shareholders in 1998 is incorporated herein by
reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     The information under "Ownership of Shares by Directors and Executive
Officers" and "Election of Directors" in the Proxy Circular for the Annual and
Special Meeting of Shareholders in 1998 is incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     The information under "Election of Directors" and "Executive Compensation"
in the Proxy Circular for the Annual Meeting of Shareholders in 1998 is
incorporated herein by reference.
 
                                      III-1
<PAGE>   28
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
(a) List of Documents Filed as Part of this Report
 
1. Financial Statements in Annual Report
 
<TABLE>
<S>                                                           <C>
Auditors' Report............................................     44
Consolidated Statements of Financial Position...............     45
Consolidated Statements of Income and Retained Earnings.....     46
Consolidated Statements of Cash Flow........................     47
Notes to the Consolidated Financial Statements..............  48-61
</TABLE>
 
2. Schedules
 
     All Schedules are omitted because the required information is inapplicable
or it is presented in the Consolidated Financial Statements or the notes
thereto.
 
3. Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                     DESCRIPTION OF DOCUMENT
-------                    -----------------------
<S>      <C>
2(a)     Agreement and Plan of Merger dated September 2, 1996, as
         amended, by and among the registrant, Arcadian Corporation
         and PCS Nitrogen, Inc., incorporated by reference to Exhibit
         2(a) to Amendment Number 2 to the registrant's Form S-4
         (File No. 333-17841).
3(i)     Restated Articles of Incorporation of the registrant dated
         October 31, 1989, as amended May 11, 1995, incorporated by
         reference to Exhibit 3(i) to the registrant's report on Form
         10-K for the year ended December 31, 1995 (the "1995 Form
         10-K").
3(ii)    Bylaws of the registrant dated March 2, 1995, incorporated
         by reference to Exhibit 3(ii) to the 1995 Form 10-K.
4(a)     Term Credit Agreement between The Bank of Nova Scotia and
         other financial institutions and the registrant dated
         October 4, 1996, incorporated by reference to Exhibit 4(b)
         to the registrant's Form S-4 (File No. 333-17841).
4(b)     First Amending Agreement between The Bank of Nova Scotia and
         other financial institutions and the registrant dated
         November 6, 1997.
4(c)     Second Amending Agreement between the Bank of Nova Scotia
         and other financial institutions and the registrant dated
         December 15, 1997.
4(d)     Indenture dated as of June 16, 1997, between the registrant
         and The Bank of Nova Scotia Trust Company of New York,
         incorporated by reference to Exhibit 4(a) the registrant's
         report on Form 8-K dated June 18, 1997.
The registrant hereby undertakes to file with the Securities and
Exchange Commission, upon request, copies of any constituent
instruments defining the rights of holders of long-term debt of the
registrant or its subsidiaries that have not been filed herewith
because the amounts represented thereby are less than 10% of the
total assets of the registrant and its subsidiaries on a consolidated
basis.
10(a)    Suspension Agreement concerning Potassium Chloride from
         Canada dated January 7, 1988, among U.S. Department of
         Commerce, the registrant, International Minerals and
         Chemical (Canada) Limited, Noranda, Inc. (Central Canada
         Potash Co.), Potash Company of America, a Division of Rio
         Algom Limited, S & P Canada, II (Kalium Chemicals), Cominco
         Ltd., Potash Company of Canada Limited, Agent for
         Denison-Potacan Potash Co. and Saskterra Fertilizers Ltd.,
         incorporated by reference to Exhibit 10(a) to the
         registrant's registration statement on Form F-1 (File No.
         33-31303) (the "F-1 Registration Statement").
</TABLE>
 
                                      IV-1
<PAGE>   29
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                     DESCRIPTION OF DOCUMENT
-------                    -----------------------
<S>      <C>
10(b)    Sixth Voting Agreement dated April 22, 1978, between Central
         Canada Potash, Division of Noranda, Inc., Cominco Ltd.,
         International Minerals and Chemical Corporation (Canada)
         Limited, PCS Sales and Texasgulf Inc., incorporated by
         reference to Exhibit 10(f) to the F-1 Registration
         Statement.
10(c)    Canpotex Limited Shareholders Seventh Memorandum of
         Agreement effective April 21, 1978, between Central Canada
         Potash, Division of Noranda Inc., Cominco Ltd.,
         International Minerals and Chemical Corporation (Canada)
         Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as
         amended by Canpotex S & P amending agreement dated November
         4, 1987, incorporated by reference to Exhibit 10(g) to the
         F-1 Registration Statement.
10(d)    Producer Agreement dated April 21, 1978, between Canpotex
         Limited and PCS Sales, incorporated by reference to Exhibit
         10(h) to the F-1 Registration Statement.
10(e)    Agreement of Limited Partnership of Arcadian Fertilizer,
         L.P. dated as of March 3, 1992 (form), and the related
         Certificate of Limited Partnership of Arcadian Fertilizer,
         L.P., filed with the Secretary of State of the State of
         Delaware on March 3, 1992 (incorporated by reference to
         Exhibits 3.1 and 3.2 to Arcadian Partners L.P.'s
         Registration Statement on Form S-1 (File No. 33-45828)).
10(f)    Geismar Complex Services Agreement dated June 4, 1984,
         between Allied Corporation and Arcadian Corporation,
         incorporated by reference to Exhibit 10.4 to Arcadian
         Corporation's Registration Statement on Form S-1 (File No.
         33-34357).
10(g)    Canpotex/PCS Amending Agreement, dated with effect October
         1, 1992, incorporated by reference to Exhibit 10(f) to the
         1995 Form 10-K.
10(h)    Canpotex PCA Collateral Withdrawing/PCS Amending Agreement,
         dated with effect October 7, 1993, incorporated by reference
         to Exhibit 10(g) to the 1995 Form 10-K.
10(i)    Esterhazy Restated Mining and Processing Agreement dated
         January 31, 1978, between International Minerals and
         Chemical Corporation (Canada) Limited and the registrant's
         predecessor, incorporated by reference to Exhibit 10(e) to
         the F-1 Registration Statement.
10(j)    Agreement dated December 21, 1990, between International
         Minerals & Chemical Corporation (Canada) Limited and the
         registrant, amending the Esterhazy Restated Mining and
         Processing Agreement dated January 31, 1978, incorporated by
         reference to Exhibit 10(p) to the registrant's report on
         Form 10-K for the year ended December 31, 1990.
10(k)    Operating Agreement dated May 11, 1993, between BP Chemicals
         Inc. and Arcadian Ohio, L.P., as amended by the First
         Amendment to the Operating Agreement dated as of November
         20, 1995, between BP Chemicals Inc. and Arcadian Ohio, L.P.
         ("First Amendment"), incorporated by reference to Exhibit
         10.2 to Arcadian Partners L.P.'s current report on Form 8-K
         for the report event dated May 11, 1993, except for the
         First Amendment which is incorporated by reference to
         Arcadian Corporation's report on Form 10-K for the year
         ended December 31, 1995 and the Second Amendment, dated as
         of November 25, 1996, filed as Exhibit 10(k) to this Form
         10-K.
10(l)    Manufacturing Support Agreement dated May 11, 1993, between
         BP Chemicals Inc. and Arcadian Ohio, L.P., incorporated by
         reference to Exhibit 10.3 to Arcadian Partners L.P.'s
         current report on Form 8-K for the report event dated May
         11, 1993, except for the First Amendment dated as of
         November 25, 1996, filed as Exhibit 10(l) to this Form 10-K.
10(m)    Amended and Restated Agreement for Lease dated as of May 16,
         1997, between Trinidad Ammonia Company, Limited Partnership,
         and PCS Nitrogen Fertilizer, L.P., incorporated by reference
         to Exhibit 10(n) to the registrant's report on Form 10-Q for
         the quarterly period ended June 30, 1997 (the "Second
         Quarter 1997 Form 10-Q").
10(n)    Amended and Restated Lease Agreement dated as of May 16,
         1997, between Trinidad Ammonia Company, Limited Partnership,
         and PCS Nitrogen Fertilizer, L.P., incorporated by reference
         to Exhibit 10(o) to the Second Quarter 1997 Form 10-Q.
</TABLE>
 
                                      IV-2
<PAGE>   30
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                     DESCRIPTION OF DOCUMENT
-------                    -----------------------
<S>      <C>
10(o)    Amended and Restated Agreement for Lease dated as of May 16,
         1997, between Nitrogen Leasing Company, Limited Partnership,
         and PCS Nitrogen Fertilizer, L.P., incorporated by reference
         to Exhibit 10(p) to the Second Quarter 1997 Form 10-Q.
10(p)    Amended and Restated Lease Agreement dated as of May 16,
         1997, between Nitrogen Leasing Company, Limited Partnership,
         and PCS Nitrogen Fertilizer, L.P., incorporated by reference
         to Exhibit 10(q) to the Second Quarter 1997 Form 10-Q.
10(q)    Amended and Restated Purchase Option Agreement dated as of
         May 16, 1997, between Nitrogen Leasing Company, Limited
         Partnership, and PCS Nitrogen Fertilizer Operations, Inc.,
         incorporated by reference to Exhibit 10(r) to the Second
         Quarter 1997 Form 10-Q.
10(r)    Amended and Restated Purchase Option Agreement dated as of
         May 16, 1997, between Trinidad Ammonia Company, Limited
         Partnership and PCS Nitrogen Fertilizer Operations, Inc.,
         incorporated by reference to Exhibit 10(s) to the Second
         Quarter 1997 Form 10-Q.
10(s)    Agreement dated January 1, 1997 between the registrant and
         Charles E. Childers.
10(t)    Potash Corporation of Saskatchewan Inc. Stock Option
         Plan -- Unaffiliated Directors, incorporated by reference to
         Exhibit 4(a) to the registrant's Post-effective Amendment
         No. 1 to Form S-8 (File No. 333-19215) (the "Form S-8").
10(u)    Potash Corporation of Saskatchewan Inc. Stock Option
         Plan -- Officers and Key Employees, incorporated by
         reference to Exhibit 4(b) to the Form S-8.
10(v)    Short-Term Incentive Plan of the registrant, as amended May
         7, 1997, incorporated by reference to Exhibit 10(w) to the
         Second Quarter 1997 Form 10-Q.
10(w)    Long-Term Incentive Plan of the registrant, as amended May
         7, 1997, incorporated by reference to Exhibit 10(x) to the
         Second Quarter 1997 Form 10-Q.
10(x)    Resolution and Forms of Agreement for Supplemental
         Retirement Income Plan, for officers and key employees of
         the registrant, incorporated by reference to Exhibit 10(o)
         to the 1995 Form 10-K.
10(y)    Forms of Agreement dated December 30, 1994, between the
         registrant and certain officers of the registrant,
         concerning a change in control of the registrant,
         incorporated by reference to Exhibit 10(p) to the 1995 Form
         10-K.
10(z)    Form of Agreement of Indemnification dated August 8, 1995,
         between the registrant and certain officers and directors of
         the registrant, incorporated by reference to Exhibit 10(q)
         to the 1995 Form 10-K.
10(aa)   Employment Agreement between Arcadian Corporation and Gary
         E. Carlson, dated as of September 5, 1996, incorporated by
         reference to Exhibit 10(cc) to the registrant's report on
         Form 10-Q for the period ended March 31, 1997.
10(bb)   Deferred Compensation Plan, for certain officers of PCS
         Phosphate Company, Inc., incorporated by reference to
         Exhibit 10(r) to the 1995 Form 10-K.
10(cc)   Supplemental Retirement Benefits Plan, for eligible
         employees of PCS Phosphate Company, Inc., incorporated by
         reference to Exhibit 10(s) to the 1995 Form 10-K.
10(dd)   Second Amended and Restated Membership Agreement dated
         January 1, 1995, among Phosphate Chemicals Export
         Association, Inc. and members of such association, including
         Texasgulf Inc., incorporated by reference to Exhibit 10(t)
         to the 1995 Form 10-K.
10(ee)   International Agency Agreement dated January 1, 1995,
         between Phosphate Chemicals Export Association, Inc. and
         Texasgulf Inc. establishing Texasgulf Inc. as exclusive
         marketing agent for such association's wet phosphatic
         materials, incorporated by reference to Exhibit 10(u) to the
         1995 Form 10-K.
</TABLE>
 
                                      IV-3
<PAGE>   31
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                     DESCRIPTION OF DOCUMENT
-------                    -----------------------
<S>      <C>
10(ff)   General Partnership Agreement forming Albright & Wilson
         Company, dated July 29, 1988 and amended January 31, 1995,
         between Texasgulf Inc. and Albright & Wilson Americas, Inc.,
         incorporated by reference to Exhibit 10(v) to the 1995 Form
         10-K.
10(gg)   Royalty Agreement dated October 7, 1993, by and between the
         registrant and Rio Algom Limited, incorporated by reference
         to Exhibit 10(x) to the 1995 Form 10-K.
10(hh)   Amending Resolution and revised forms of agreement regarding
         Supplemental Retirement Income Plan of the registrant,
         incorporated by reference to Exhibit 10(x) to the
         registrant's report on Form 10-Q for the quarterly period
         ended June 30, 1996.
10(ii)   Employment Agreement dated January 21, 1998, by and between
         PCS Phosphate Company, Inc. and Thomas J. Wright.
10(jj)   Shareholder Rights Agreement as amended and restated on
         March 2, 1998, incorporated by reference to Schedule B to
         the registrant's proxy circular for the annual and special
         meeting of shareholders to be held on May 7, 1998.
11       Statement re Computation of Per Share Earnings.
13       1997 Annual Report.
21       Subsidiaries of the Registrant.
23       Consent of Deloitte & Touche.
27       Financial Data Schedule.
</TABLE>
 
(b) No reports on Form 8-K were filed by the registrant during the last quarter
of 1997.
 
CAUTIONARY STATEMENT
 
     This report contains forward looking statements. A number of factors could
cause actual results to differ materially from those in the forward looking
statements, including, but not limited to, fluctuation in supply and demand in
fertilizer markets, fluctuation in supply and demand in sulfur and petrochemical
markets, changes in capital markets, changes in currency exchange rates,
unexpected geological or environmental conditions, imprecision in reserve
estimates and changes in governmental policy.
 
                                      IV-4
<PAGE>   32
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                     POTASH CORPORATION OF SASKATCHEWAN INC.
 
                                     By: /s/ CHARLES E. CHILDERS
                                       -----------------------------------------
                                       Charles E. Childers
                                       Chief Executive Officer
                                       March 27, 1998
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                SIGNATURE                                     TITLE                          DATE
                ---------                                     -----                          ----
<C>                                         <S>                                         <C>
          /s/ CHARLES E. CILDERS            Chairman of the Board, President and Chief  March 27, 1998
------------------------------------------  Executive Officer
           Charles E. Childers
 
          /s/ BARRY E. HUMPHREYS            Sr. Vice President, Finance and Treasurer   March 27, 1998
------------------------------------------  (Principal Financial and Accounting
            Barry E. Humphreys              Officer)
 
          /s/ ISABEL B. ANDERSON            Director                                    March 27, 1998
------------------------------------------
            Isabel B. Anderson
 
          /s/ DOUGLAS J. BOURNE             Director                                    March 27, 1998
------------------------------------------
            Douglas J. Bourne
 
            /s/ DENIS J. COTE               Director                                    March 27, 1998
------------------------------------------
              Denis J. Cote
 
           /s/ WILLIAM J. DOYLE             Director                                    March 27, 1998
------------------------------------------
             William J. Doyle
 
     /s/ HON. WILLARD Z. ESTEY, Q.C.        Director                                    March 27, 1998
------------------------------------------
       Hon. Willard Z. Estey, Q.C.
 
            /s/ DALLAS J. HOWE              Director                                    March 27, 1998
------------------------------------------
              Dallas J. Howe
</TABLE>
<PAGE>   33
 
<TABLE>
<CAPTION>
                SIGNATURE                                     TITLE                          DATE
                ---------                                     -----                          ----
<C>                                         <S>                                         <C>
 
           /s/ JAMES F. LARDNER             Director                                    March 27, 1998
------------------------------------------
             James F. Lardner
 
          /s/ DONALD E. PHILLIPS            Director                                    March 27, 1998
------------------------------------------
            Donald E. Phillips
 
           /s/ PAUL SCHOENHALS              Director                                    March 27, 1998
------------------------------------------
             Paul Schoenhals
 
           /s/ DARYL K. SEAMAN              Director                                    March 27, 1998
------------------------------------------
             Daryl K. Seaman
 
      /s/ E. ROBERT STROMBERG, Q.C.         Director                                    March 27, 1998
------------------------------------------
        E. Robert Stromberg, Q.C.
 
             /s/ JACK G. VICQ               Director                                    March 27, 1998
------------------------------------------
               Jack G. Vicq
 
          /s/ BARRIE A. WIGMORE             Director                                    March 27, 1998
------------------------------------------
            Barrie A. Wigmore
 
             /s/ PAUL S. WISE               Director                                    March 27, 1998
------------------------------------------
               Paul S. Wise
</TABLE>
<PAGE>   34
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF DOCUMENT 
-----------                     -----------------------
<S>           <C>
2(a)          Agreement and Plan of Merger dated September 2, 1996, as amended,
              by and among the registrant, Arcadian Corporation and PCS
              Nitrogen, Inc., incorporated by reference to Exhibit 2(a) to
              Amendment Number 2 to the registrant's Form S-4 (File No.
              333-17841).
 
3(i)          Restated Articles of Incorporation of the registrant dated
              October 31, 1989, as amended May 11, 1995, incorporated by
              reference to Exhibit 3(i) to the registrant's report on Form
              10-K for the year ended December 31, 1995 (the "1995 Form
              10-K").
 
3(ii)         Bylaws of the registrant dated March 2, 1995, incorporated
              by reference to Exhibit 3(ii) to the 1995 Form 10-K.
 
4(a)          Term Credit Agreement between The Bank of Nova Scotia and
              other financial institutions and the registrant dated
              October 4, 1996, incorporated by reference to Exhibit 4(b)
              to the registrant's Form S-4 (File No. 333-17841).
 
4(b)          First Amending Agreement between The Bank of Nova Scotia and
              other financial institutions and the registrant dated
              November 6, 1997.
 
4(c)          Second Amending Agreement between The Bank of Nova Scotia
              and other financial institutions and the registrant dated
              December 15, 1997.
 
4(d)          Indenture dated as of June 16, 1997, between the registrant
              and The Bank of Nova Scotia Trust Company of New York,
              incorporated by reference to Exhibit 4(a) the registrant's
              report on Form 8-K dated June 18, 1997.
 
10(a)         Suspension Agreement concerning Potassium Chloride from
              Canada dated January 7, 1988, among U.S. Department of
              Commerce, the registrant, International Minerals and
              Chemical (Canada) Limited, Noranda, Inc. (Central Canada
              Potash Co.), Potash Company of America, a Division of Rio
              Algom Limited, S & P Canada, II (Kalium Chemicals), Cominco
              Ltd., Potash Company of Canada Limited, Agent for
              Denison-Potacan Potash Co. and Saskterra Fertilizers Ltd.,
              incorporated by reference to Exhibit 10(a) to the
              registrant's registration statement on Form F-1 (File No.
              33-31303) (the "F-1 Registration Statement").
 
10(b)         Sixth Voting Agreement dated April 22, 1978, between Central
              Canada Potash, Division of Noranda, Inc., Cominco Ltd.,
              International Minerals and Chemical Corporation (Canada)
              Limited, PCS Sales and Texasgulf Inc., incorporated by
              reference to Exhibit 10(f) to the F-1 Registration
              Statement.
 
10(c)         Canpotex Limited Shareholders Seventh Memorandum of
              Agreement effective April 21, 1978, between Central Canada
              Potash, Division of Noranda Inc., Cominco Ltd.,
              International Minerals and Chemical Corporation (Canada)
              Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as
              amended by Canpotex S & P amending agreement dated November
              4, 1987, incorporated by reference to Exhibit 10(g) to the
              F-1 Registration Statement.
 
10(d)         Producer Agreement dated April 21, 1978, between Canpotex
              Limited and PCS Sales, incorporated by reference to Exhibit
              10(h) to the F-1 Registration Statement.
 
10(e)         Agreement of Limited Partnership of Arcadian Fertilizer,
              L.P. dated as of March 3, 1992 (form), and the related
              Certificate of Limited Partnership of Arcadian Fertilizer,
              L.P., filed with the Secretary of State of the State of
              Delaware on March 3, 1992 (incorporated by reference to
              Exhibits 3.1 and 3.2 to Arcadian Partners L.P.'s
              Registration Statement on Form S-1 (File No. 33-45828)).
 
10(f)         Geismar Complex Services Agreement dated June 4, 1984,
              between Allied Corporation and Arcadian Corporation,
              incorporated by reference to Exhibit 10.4 to Arcadian
              Corporation's Registration Statement on Form S-1 (File No.
              33-34357).
 
10(g)         Canpotex/PCS Amending Agreement, dated with effect October
              1, 1992, incorporated by reference to Exhibit 10(f) to the
              1995 Form 10-K.
</TABLE>
 
<PAGE>   35
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF DOCUMENT
-----------                     -----------------------
<S>           <C>
10(h)         Canpotex PCA Collateral Withdrawing/PCS Amending Agreement,
              dated with effect October 7, 1993, incorporated by reference
              to Exhibit 10(g) to the 1995 Form 10-K.
10(i)         Esterhazy Restated Mining and Processing Agreement dated
              January 31, 1978, between International Minerals and
              Chemical Corporation (Canada) Limited and the registrant's
              predecessor, incorporated by reference to Exhibit 10(e) to
              the F-1 Registration Statement.
 
10(j)         Agreement dated December 21, 1990, between International
              Minerals & Chemical Corporation (Canada) Limited and the
              registrant, amending the Esterhazy Restated Mining and
              Processing Agreement dated January 31, 1978, incorporated by
              reference to Exhibit 10(p) to the registrant's report on
              Form 10-K for the year ended December 31, 1990.
 
10(k)         Operating Agreement dated May 11, 1993, between BP Chemicals
              Inc. and Arcadian Ohio, L.P., as amended by the First
              Amendment to the Operating Agreement dated as of November
              20, 1995, between BP Chemicals Inc. and Arcadian Ohio, L.P.
              ("First Amendment"), incorporated by reference to Exhibit
              10.2 to Arcadian Partners L.P.'s current report on Form 8-K
              for the report event dated May 11, 1993, except for the
              First Amendment which is incorporated by reference to
              Arcadian Corporation's report on Form 10-K for the year
              ended December 31, 1995 and the Second Amendment, dated as
              of November 25, 1996, filed as Exhibit 10(k) to this Form
              10-K.
 
10(l)         Manufacturing Support Agreement dated May 11, 1993, between
              BP Chemicals Inc. and Arcadian Ohio, L.P., incorporated by
              reference to Exhibit 10.3 to Arcadian Partners L.P.'s
              current report on Form 8-K for the report event dated May
              11, 1993, except for the First Amendment, dated as of
              November 25, 1996, filed as Exhibit 10(l) to this Form 10-K.
 
10(m)         Amended and Restated Agreement for Lease dated as of May 16,
              1997, between Trinidad Ammonia Company, Limited Partnership,
              and PCS Nitrogen Fertilizer, L.P., incorporated by reference
              to Exhibit 10(n) to the registrant's report on Form 10-Q for
              the quarterly period ended June 30, 1997 (the "Second
              Quarter 1997 Form 10-Q").
 
10(n)         Amended and Restated Lease Agreement dated as of May 16,
              1997, between Trinidad Ammonia Company, Limited Partnership,
              and PCS Nitrogen Fertilizer, L.P., incorporated by reference
              to Exhibit 10(o) to the Second Quarter 1997 Form 10-Q.
 
10(o)         Amended and Restated Agreement for Lease dated as of May 16,
              1997, between Nitrogen Leasing Company, Limited Partnership,
              and PCS Nitrogen Fertilizer, L.P., incorporated by reference
              to Exhibit 10(p) to the Second Quarter 1997 Form 10-Q.
 
10(p)         Amended and Restated Lease Agreement dated as of May 16,
              1997, between Nitrogen Leasing Company, Limited Partnership,
              and PCS Nitrogen Fertilizer, L.P., incorporated by reference
              to Exhibit 10(q) to the Second Quarter 1997 Form 10-Q.
 
10(q)         Amended and Restated Purchase Option Agreement dated as of
              May 16, 1997, between Nitrogen Leasing Company, Limited
              Partnership, and PCS Nitrogen Fertilizer Operations, Inc.,
              incorporated by reference to Exhibit 10(r) to the Second
              Quarter 1997 Form 10-Q.
 
10(r)         Amended and Restated Purchase Option Agreement dated as of
              May 16, 1997, between Trinidad Ammonia Company, Limited
              Partnership and PCS Nitrogen Fertilizer Operations, Inc.,
              incorporated by reference to Exhibit 10(s) to the Second
              Quarter 1997 Form 10-Q.
 
10(s)         Agreement dated January 1, 1997 between the registrant and
              Charles E. Childers.
 
10(t)         Potash Corporation of Saskatchewan Inc. Stock Option
              Plan -- Unaffiliated Directors, incorporated by reference to
              Exhibit 4(a) to the registrant's Post-effective Amendment
              No. 1 to Form S-8 (File No. 333-19215) (the "Form S-8").
 
10(u)         Potash Corporation of Saskatchewan Inc. Stock Option
              Plan -- Officers and Key Employees, incorporated by
              reference to Exhibit 4(b) to the Form S-8.
</TABLE>
 
<PAGE>   36
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF DOCUMENT
-----------                     -----------------------
<S>           <C>
10(v)         Short-Term Incentive Plan of the registrant, as amended May
              7, 1997, incorporated by reference to Exhibit 10(w) to the
              Second Quarter 1997 Form 10-Q.
 
10(w)         Long-Term Incentive Plan of the registrant, as amended May
              7, 1997, incorporated by reference to Exhibit 10(x) to the
              Second Quarter 1997 Form 10-Q.
 
10(x)         Resolution and Forms of Agreement for Supplemental
              Retirement Income Plan, for officers and key employees of
              the registrant, incorporated by reference to Exhibit 10(o)
              to the 1995 Form 10-K.
 
10(y)         Forms of Agreement dated December 30, 1994, between the
              registrant and certain officers of the registrant,
              concerning a change in control of the registrant,
              incorporated by reference to Exhibit 10(p) to the 1995 Form
              10-K.
 
10(z)         Form of Agreement of Indemnification dated August 8, 1995,
              between the registrant and certain officers and directors of
              the registrant, incorporated by reference to Exhibit 10(q)
              to the 1995 Form 10-K.
 
10(aa)        Employment Agreement between Arcadian Corporation and Gary
              E. Carlson, dated as of September 5, 1996, incorporated by
              reference to Exhibit 10(cc) to the registrant's report on
              Form 10-Q for the period ended March 31, 1997.
 
10(bb)        Deferred Compensation Plan, for certain officers of PCS
              Phosphate Company, Inc., incorporated by reference to
              Exhibit 10(r) to the 1995 Form 10-K.
 
10(cc)        Supplemental Retirement Benefits Plan, for eligible
              employees of PCS Phosphate Company, Inc., incorporated by
              reference to Exhibit 10(s) to the 1995 Form 10-K.
 
10(dd)        Second Amended and Restated Membership Agreement dated
              January 1, 1995, among Phosphate Chemicals Export
              Association, Inc. and members of such association, including
              Texasgulf Inc., incorporated by reference to Exhibit 10(t)
              to the 1995 Form 10-K.
 
10(ee)        International Agency Agreement dated January 1, 1995,
              between Phosphate Chemicals Export Association, Inc. and
              Texasgulf Inc. establishing Texasgulf Inc. as exclusive
              marketing agent for such association's wet phosphatic
              materials, incorporated by reference to Exhibit 10(u) to the
              1995 Form 10-K.
 
10(ff)        General Partnership Agreement forming Albright & Wilson
              Company, dated July 29, 1988 and amended January 31, 1995,
              between Texasgulf Inc. and Albright & Wilson Americas, Inc.,
              incorporated by reference to Exhibit 10(v) to the 1995 Form
              10-K.
 
10(gg)        Royalty Agreement dated October 7, 1993, by and between the
              registrant and Rio Algom Limited, incorporated by reference
              to Exhibit 10(x) to the 1995 Form 10-K.
 
10(hh)        Amending Resolution and revised forms of agreement regarding
              Supplemental Retirement Income Plan of the registrant,
              incorporated by reference to Exhibit 10(x) to the
              registrant's report on Form 10-Q for the quarterly period
              ended June 30, 1996.
 
10(ii)        Employment Agreement dated January 21, 1998 by and between
              PCS Phosphate Company, Inc. and Thomas J. Wright.
</TABLE>
 
<PAGE>   37
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF DOCUMENT
-----------                     -----------------------
<S>           <C>
10(jj)        Shareholder Rights Agreement as amended and restated March
              2, 1998, incorporated by reference to Schedule B to the
              registrant's proxy circular for the annual and special
              meeting of shareholders to be held on May 7, 1998.
11            Statement re Computation of Per Share Earnings.
13            1997 Annual Report.
21            Subsidiaries of the Registrant.
23            Consent of Deloitte & Touche
27            Financial Data Schedule.
</TABLE>